Bloomberg Surveillance 9/30/2026

You have to be careful with this narrative that the US economy is really accelerating. So I'm still not overly convinced that this is a fed willing to do what it takes to get us back to that 2% target. This is the sixth straight year we're missing the 2% target. The risk is if we get a much bigger or more prolonged hiking cycle than is expected. Once we get picky, things will start to settle down again. This is Bloomberg surveillance with Jonathan Ferro, Lisa Abramowitz and Annmarie Horden. Live from New York City this morning. Good morning. Good morning for our audience worldwide. Bloomberg Surveillance starts right now coming into Wednesday closing at September. Equity bulls attempted to shake off 30 year bond yields at multi-decade highs. Looking to quarterly results from micron for another layer of earnings protection heading into a firehose of economic data and a fed primed to do even more PCA. Coming up next is the Fed's preferred inflation gauge. Everyone is going to be keenly focused on this. Especially we had fed speak yesterday, most notably the New York Fed President Williams coming out and saying basically, if the economy evolves in a manner broadly consistent, my forecast one further upward adjustment of the federal funds target range may be appropriate late this year, late this year. So when we get PCs, there going to be a sense of urgency that maybe they would have to act in October. Or is it going to be enough data that maybe they can sit, hold, pause and wait till the end of the year? Just sit, hold pause on this board right here. The monthly move on bond yields for September twos tens 30s yields higher for a seventh consecutive month over the month we've seen a 50 basis point move for the front end of the curve until a major move at the front end. And just in the last 24 hours a crack, a very small crack in the hawkish chorus. New York Fed President John Williams just making the case for one more hike. Now, I know that's only a very, very small thing, but given the hawkish course we've had over the last few weeks, it's something. It is definitely something. And you saw that immediately in the futures pricing, in terms of how many individuals are now thinking that October is not going to be as bullish for a hike as possible. People are coming off those bets. They're thinking maybe the fed will wait. They're going to move to December. I do like the reporter did ask him, you know, this has to do because there's a midterm election where five weeks where he said, absolutely not. It's not about politics. It's about the data. The data wasn't great yesterday. Consumer confidence wasn't fantastic. Job openings lower than expected, and 30 still couldn't rally a 38 year old at the highest level since 2002. I do think that's notable. But against the backdrop of disappointing data, the 30 year bond still couldn't catch a bit. Increasingly, at the moment, at least looking at a 10th of. It's why so many people have got low conviction about stepping in into the long get, because there are so many reasons why you see these movements in the bond market. It is not just what's going on in the US economic data, it's the fact of the matter is we still have elevated oil prices. At this moment, this administration is weighing its options on a diesel export ban. Individuals are starting to talk about the fact that potentially there's going to be fiscal problems, even though everyone kind of, you know, the deficit people kind of blow it off. But the fact of the matter is it's coming up more and more in conversations. And at the same time, there's just so much expansion when it comes to the air to trade, which is why equities so far and doing okay. Futures this morning positive five out of ten were up on the session. Were higher on the month. Were higher on the quarter on the S&P 500. And no real sign that this is driving the equity trade. To your point I will talk about OpenAI a little bit later this hour, targeting a $30 billion funding round with a valuation of .4 trillion. I know the IPO has been delayed, but that's still a company that's got access to markets, incredible access to markets. That is an insane amount of capital. I guess they're delaying the IPO. And I know that Sam Altman is talking about potentially they want all their ducks in a row. They are talking about the fact they want to make sure they are safe, and they obviously realize they're going to be treated very differently as a public company than when they were private. But my gosh, that is a tremendous amount of money, and we are seeing it across the entire AI space in the hyperscalers space. Let's talk about the equity bond story. We'll catch up with Matt Miskin of John Hancock as the 30 upon your hits. A 24 year high will then catch up with Jennifer Huddleston of the Cato Institute. As tech leaders sign a morally binding I pledge, whatever that means to Terry Wiseman of Macquarie as Wall Street awaits a key read on inflation. We begin this hour with stocks and bonds stabilizing with yields sitting near multi-decade highs. Matt Miskin of John Hancock writing we are in a high yield bond world and no one wants anything to do with it. Matt joins us now for more. Matt, welcome. Let's just start with the long and the long can. We got some disappointing data and still people didn't want to buy on the 30s. What gives. Yeah yesterday was tough on consumer confidence. Weaker jolts missed and yet yields higher. And oil prices were lower. Uh, so what we're seeing now more broadly is just a still a love for risk assets, equities, just doing amazing. Uh, this year and every stock on the planet has loved every bond on the planet is disliked. So it's a sentiment issue. Uh, we got to get through the PC report today. You know, we're going to get some revisions, so that's good news. Um, but underlying it, I think we're waiting to see this before bond investors step back into this market. Let's just bring up the yield curve Matt. And look at 210 1030. So we could sit on the front end. We've done this repeatedly over the last month or so. Twos have got a really comfortable spread right now between that where the two year rates and where the fed policy rate is. Just think about the risk reward here, how compounding things might be just to sit the front end of the curve. Where's the hawkish surprise going to come from given what's already priced. Yeah. So I mean we backed off the 2nd October hike as of this morning. So that's nice. But December is still looking like a hike. And so you know right now I think we've gone from about three hikes priced into two. That's a nice little reduction uh for the markets. But I think it is a lot built in. And look right now you can getting about a 6% yield in the intermediate part of the curve. That's really attractive. We're at 20 year high yields and no one wants them. So there's a ton of value in the bond market right now. The equities have the momentum going for them. They don't have valuation going for them. We're off probably peak growth. We're probably decelerating and growth here. And I think that's what the bond market is missing. I think that's a story for 2027. This looks a lot like 2018 to us where you had fiscal policy come in, help the economy juice it into kind of the back half. We've got a new fed chair trying to communicate. Uh, it's it's mis it's missing some of the time. But nonetheless bond investors have better yield they've had in 20 years. Try to keep it simple. If you can lock in these yields I think that's going to be pretty attractive. I don't know came out the communication improved as a quarter. Grow a little bit older. Let's give him that. Matt, let's talk about the argument in the equity market at the moment. At the moment, I hear a lot of people come on this program talking about rotating within equities, going back to the hardware trade, the tech trade. Are you making the argument to rotate out of equities to take advantage of these bond moves. So we're using quality value. And John look we've still got tech. That's one thing we have had over the years. It's just great quality businesses. Um the earnings growth is massive. But we keep trying to find what is the best thing around that. And that's really where we spend our time looking for. Um, health care has been great for those this sector. We've been adding to that. Industrials though took a breather. It was tough because the eye trade didn't really show much breath. It was like semis and then everything else just got left behind. I think part of that is that interest rate story, like we're going to look back on this quarter as the rate shock quarter utilities got crushed. Uh, we're picking through some of that stuff and saying, look, you know, if rates do kind of back up to a certain point here in level out, where are things that have added or have some more value. We think defensive value actually cheapened up a bit this quarter, but quality values, better mantra. We've been doing pretty well here, you know, over the course of the quarter. Other than that, um, you know, we're just trying to find other things in tack. But to your point, we've got micron after, uh, the close here in terms of earnings. I wouldn't be surprised if it's another great quarter. We're watching South Korea exports of semiconductors. I mean it was off the charts the last couple of weeks in terms of the at least the first couple of weeks of September. So in overall in the quarter, I mean, GDP for Q3 is booming. A lot of that's investment in data centers. Um, so that's no, no, that's the thing. It's like we already know that. What can we find that's undiscovered things that are trying to still add some value to portfolios and healthcare to us is that biggest sector besides health care and industrials. Is there anything else you like? Because it seems like that has been a trade that everyone has been pretty long this entire year. Matt. Yeah. And you know, in the rotation even in com services, like some of the stuff in communication services was so left behind in the quality space. And these companies have great ROE. Great profit margins. Um so it is some of that quality, you know, growth part of the market. We still have it. Um, it is about as broad as we've been in terms of sectors we like. So I know it doesn't sound like a lot, but that is a lot for us. We used to be much more concentrated. Um, but it is it's emerging. It's getting harder. I mean, every stock on the planet is basically up ten, 20% this year. Emerging markets are up 24. Uh, small caps up 14. The value is just not there. And it's all about earnings growth. And it's like we know it. Um but the earnings growth picture for Q3 is probably going to be strong. We're looking at nearly 28% earnings growth for the S&P 500 as of now for two three. It's so weird because it's like the end of the quarter. We're still getting Q2 data, but it's around the quarter. We get Q3 earnings here. We think it's going to be a bit broader than the market. Thanks. At any point, do you see higher rates, higher oil prices impacting these earnings? I mean, you look at the Conference Board data yesterday, clearly constant references about higher prices, higher energy prices are hitting consumers. They start to hit some corporates. Yeah. It's been one of the biggest dislocations I've seen in my career from basically the consumer saying things are tough and corporate profits and corporate, you know, management saying things are amazing. Um, the data center build out is a once in a generation type thing, and I think that's really been the epicenter of it. Uh, talking to analysts on our team, it's really, you know, either you're in the data centers and you're building those out or you're not, and it's two different worlds, basically. But nonetheless, um, we think that basically ends in 2027. What we're going to see is the base effect. So this last quarter we had 20 percentage points of the 50% earnings growth was actually private investment rewriting those valuations of these upcoming tech companies that are going to IPO. Uh, so that's going to be hard next quarter to say. All right, well, we had even more private investments that came out of nowhere in AI. And we're going to add to that. So I look at 2027 earnings as it's going to be a high bar to hit the base effects are going to be tough. Higher cost of capital, higher energy input costs. You add it all up. It's going to be tougher. And I think that's why bond yields right now are reflecting booming everything. Next year I think it's going to be tougher I think growth is going to be weaker softer. We're not going to get the fiscal stimulus we got this year. Next year you add it all up I think yields are lower into next year. I think these yields are attractive. I think equities are going to be mindful the valuation mindful we might be passing peak growth. But there are still certainly opportunities there. Hey man it's good to see you. Always good to see you in there John Hancock Matt thank you. We mentioned small cap small cap stamp by more than 9% from the highs of August. The banks as well. Evidence of rates starting to bite. Maybe some jitters on the technical side of things, the banks are down by more than 10% from the mid August highs heading into earnings in a few weeks time, and high yield spreads wider for six consecutive sessions. So access to capital is becoming a little bit more uneven. Data shifts becoming narrower. I think you can make the case that you're just starting to bite. Might not see at the index level on, say, the S&P 500, but beneath the surface, some disruption emerging. That's why Kevin Gordon yesterday said this is a duck market. You're not really seeing it on the top. But under the surface you do see that churn and a little bit of stability features just about unchanged this morning. Let's get you an update on news worldwide with your Bloomberg. Very Vonnie Quinn has more. Hey funny. Hey John. Good morning. And traffic reportedly routed 47% of its sales to customers last year through cloud partners Google and Amazon Reuters reporting. The hyperscalers collected about $351 million in distribution fees from the AI developer. That's roughly $0.16 for every dollar of sales. Boeing shares rising in the premarket. The Pentagon picking the company to produce the Navy's next Top Gun fighter jets. The contract is valued at more than $20 billion. As the second major fighter jet program Boeing has been winning in as many years. UK Prime Minister Andy Burnham says he might campaign to take Britain back into the EU at the next general election. It's among options Burnham says he'll discuss at the UK EU summit. Others include rejoining the bloc's single market and entering a customs union. And that is your Bloomberg we stop. Funny. Thank you. Thanks for the update. I'll leave that controversy where it belongs in the UK and I won't read too much life into it. I feel like my entire life when I was living there was just constantly. Are we joining or exiting? Whether or not the European Union I live in is Scottish referendum? And now potentially I mean the country split on this. So this is going to be perennial for the United Kingdom. I thought we'd moved away from this conversation. 0% growth is too tempting for the for the UK right now. Get back on board with Europe. I. Maybe they feel like they have no choice. What else is the Labour Party really offering? Let's see what the push is. How do I get to the next election in a few years time, and perhaps sooner? I'm next on the programme. Tech leaders get in line. The name has been officially changed by the biggest, the smartest, the greatest people anywhere in the world. It's been officially changed to superintelligence. So I think it is worth highlighting the benefits of AI, which we'll see. Thank you. Up next, Jennifer Huddleston of the Cato Institute live from New York City this morning. Good morning. Here is what I had this morning. It starts a little bit later at 815 eastern time when you get ADP, the appetizer ahead of the payrolls report later this week at 830 eastern time, PCA data setting the tone for the conversation with fed officials will hear from Neel Kashkari, Minneapolis Fed president today. You'll hear from him tomorrow on this program right here on Bloomberg TV. Looking forward to having that conversation with him about the next move, the one after that may maybe the one after that too. How much more work does this Federal Reserve need to do? I think they do a lot more work. When you hear we have fed officials are talking about it. We heard from a slew of them yesterday. But obviously what stood out was the New York Fed president talking about the fact that we're going to need one more, but we don't need to act as urgently. That basically means October for a lot of people. As we heard, Matt, Michigan woke up this morning and basically said, it's off the table for us too. Now everyone's going to be looking for December. That's about as dovish as it gets right now, given how hawkish it's been the hawkish course of the last few weeks. Equity futures right now the S&P 500 just about unchanged going nowhere on the Nasdaq, going somewhere down about a 10th of 1% on the Nasdaq 100 in the bond market. What a move we've seen on the year. The ten year has had a 100 basis point move on the quarter. We have had three quarters of that 75 basis points on the month. We've had half of it, 50 basis points on a ten year there and thereabouts, almost 50 basis points higher. 3rd September yields lower by about two basis point this morning. 522 one tends to close out the month. That is far away from where this administration would like to see the ten year yield. I remember we were at 4.5 and the president said it was yippee and reversed course. We don't see him doing anything that could potentially calm this bond market right now. Whether or not that's coming out and talking about a little bit of fiscal discipline. We're seeing the opposite. He's talking about $5,000 checks if you want to go vote and Republicans win. And at the same time, we also see him not taking basically what some would call Iranian bait, but basically any deal just to get oil prices down, which obviously would feed into the bond markets focus over the last 24 hours in Washington very much on AI and technology. On the savannahs. This morning, tech leaders get in line. The name has been officially changed by the biggest, the smartest, the greatest people anywhere in the world. It's been officially changed to superintelligence. So I think it is worth highlighting the benefits of AI. Uh, which we'll see for a minute. Thank you. So here's the latest. This morning, the president signing an executive order renaming artificial intelligence superintelligence as nearly two dozen of the industry's most powerful CEOs agree to self regulation. But Lex Tyler joins us now from Washington for more. Hi, Tyler. Hey, John. Good morning. Well, tech leaders admitting they have to get used to using the term super intelligence after President Trump ordered the federal government to do so, though it does come as the white House reiterates that it wants these companies right at the center of policing their own technology. Yesterday we saw these tech execs at the white House to sign this agreement, which states the industry will meet on a regular schedule to set best practices, according to tech shared by the white House. The document encourages AI companies to implement four layers of internal controls and the use of third party auditors. It is non-binding. The President Trump equated the pact to, quote, almost like a constitution. The fact the president is engaging on AI safety at all does mark a shift after repeatedly rejecting the idea of any risks. But that, along with the name rebrand to superintelligence, is highlighting what a politically charged issue this has become. A new poll just released by Quinnipiac University shows that just about 7 in 10 voters say that they would prefer to back candidates that support stricter guardrails when it comes to the technology. Now, John, I did catch up with a few of the attendees yesterday, including Palantir CEO Alex Karp, who told me he'll engage with anyone who wants to discuss about AI, its risks and the rewards, including on Capitol Hill. Though we should say as we get closer to the midterms, what happened yesterday stands in stark contrast to any of the legislative efforts that are brewing with those congressional candidates. It's on a candle down in Washington. Thank you. To build on this. Jennifer Huddleston of the Cato Institute writes, South regulation may offer a more flexible way to adapt without stifling innovation. However, concerns remain about some of the government's more ad hoc actions. Jennifer joins us now for more. Jennifer, welcome to the program. We are facing potentially one of the biggest IPOs we've ever seen. And in the prospectus that leaked this week, there is a reference in the risk factors to existential risk to humanity. And yet in Washington we're focused on a rebrand to super intelligence. Jennifer what are things going wrong down in the nation's capital? So I think we're also focused on a lot of the benefits of artificial intelligence. And we certainly heard this in yesterday's conversations and in a bit of what was just played there. A lot of emphasis on how artificial, or what has now been termed superintelligence can apply to a lot of different areas beyond just what many people naturally think, as well as the impact it's having on the economy. We certainly seen a lot of debate over the use of the term artificial intelligence. Is that part of why we're seeing this kind of consumer dis concern just concern nation? Um, there's consumer uncertainty around the term that it conjures up kind of these images of sci fi. But at the same time, what we really should be looking at is how this technology is playing out, not necessarily just a use of a specific word. Jennifer, how is self-policing going to work, especially politically, for this administration ahead of the midterm elections, when most of the public do not trust those individuals standing around the president yesterday in the white House driveway. I think it's really important to look at how industry self-regulation can help solve some of the very nuanced problems. That may be what's giving rise to those concerns. And that's why you have seen these kind of conversations around are there best practices that could emerge, best practices that companies could agree to this? Under such a framework, you can adapt more, particularly in something that's moving so rapidly as I is. You think about the conversations we were having around artificial intelligence only a year ago. And now the conversations we're having are very different. The an industry self-regulation approach allows industry to find what are those actual risks that perhaps we want to establish best practices that can be flexible as this technology evolves, so that we don't prevent the benefits out of an overabundance of caution. But how successful is that when it's not binding? The president only said it's, quote, morally binding. There's no real legal obligation for these companies to adhere to this new safeguard. This will, of course, continue to be one of the questions as new issues arise. One of the things around industry self-regulation, though, is that it's not just existing in a vacuum. There are also many laws around specific harms that may come into play when we're talking about things like fraud. When we're talking about some of the other concerns with AI around things like discrimination. There may already be existing laws in play that can address some of those harms. And this is providing another layer to help work through what may be some of those new concerns that could arise, but without stifling those beneficial approaches as well. The president said this yesterday. There's regulation in the book already, the DOJ with the FBI. Do you even think this is needed? I think this is providing some clarity and also providing some opportunities for companies to figure out what are those issues that they need to consider looking more closely into. Are there norms that, as this industry has evolved, that could establish best practices? But rather than going with that very top down, heavy handed approach, something more akin to what we've seen in Europe with the I at trying to preserve that flexibility, but also recognizing that there may be some nuance, specific concerns that need a framework and need a set of norms that industry can develop. Are you expecting more tax proposals on these companies? Because that's what a lot of Democrats are starting to talk about, especially five weeks away from the midterms and then really into 2028. I'm not a tax policy expert. I luckily have some colleagues who have looked far more deeply into that issue. But what I will say is, if we think about this in terms of how it played out in the internet era, we certainly should think very carefully about what impact tax proposals on eye are. Tax proposals on data center could have at this critical time in the industry, and whether or not the proposals actually make sense with what we're seeing and how the industry actually works. In many cases, this could raise several concerns about the level of taxation that it would impose at a critical time in the industry. Jennifer, appreciate your time, as always. Jennifer Hudson, that of the Institute on the push down in Washington to do something about some of the warnings we've had from these AI companies. This story is not dying down, and the midterms could set the tone for policy for the next few years into 28. And you already see a lot of bills hosted by Democrats in Congress that want to at least unwind some of the tax breaks that air companies are getting for, say, building a data center. We've seen states really leave this charge with moratoriums when it comes to the president and this new, not AI superintelligence rebranding, potentially this group of people are going to come together and talk about safeguards. There are legal issues already. There are laws on the books that these companies need to abide by. I think the president politically, is trying to show that at least he's doing something, because this comes up in poll after poll a lot of anxiety. Up next on the program, we talk about the anxiety in the energy market. We'll catch up with Francisco Blanch of Bank of America as the Trump administration holds crisis talks on a potential diesel export ban. Plus, funny. How's your morning move as Boeing beating Camp Northrop for the next generation of fighter jet Boeing up by close to 3% in the free market. Wrapping up September. Wrapping up Q3. What a quarter. It's been equity futures on the S&P 500. Just about positive on the S&P on a session. Just about negative on the Nasdaq, but positive just about the month and a quarter for the Nasdaq 100. Setting the tone for this market worldwide. The beginning of a war that started in late February. Just check out the bond market this morning. Tense. Looking at a seventh consecutive monthly gain for a ten year yield, something we have not seen since 2011. Your tenure this morning is at 522. The low of the year was February 27th. That was the last trading day before the war started. And since then this yield is higher by something like 130 basis points over that period. This war is really set the tone for fixed income worldwide. It's why the Treasury Secretary was asked about higher yields. Constantly says, well, it's so correlated with the price of oil. The issue obviously he has and the Federal Reserve has is that they don't have control whether or not the Strait of Hormuz becomes completely open to whether or not the oil flows continue, whether or not Russia decides to extend a diesel export ban. They can't control that. And that right now is a massive issue amongst a host of issues. What I can say this morning, it's everything, but that is a massive driver we've seen for this year. That's the line in the sand on all the charts. You can just see it. You can just plot it against anything. Take this. The German French ten year spread right now is blown out to a 120 basis points. The time of the year, February 25th. Just a few days before the war started, the times of the year were about 55 basis points, with more than double on that spread. And for some countries with limited fiscal space, you're starting to see the pain more acutely. You start to see in the French government bonds, you're starting to see it elsewhere, too. They've got a budget coming up in the next 24 hours, and a lot of focus is going to be on that for sure. I was just going to say the second you mentioned budget in France, you actually see the reaction pretty quickly in the bond market. Also, they have a lot of political issues in Germany and in France as well. And these are these are countries. This is a continent that's very vulnerable and spikes in energy prices at the same time. They are not just dealing with the crisis in the Middle East. They are dealing. I mentioned Russia extending a diesel export ban through the month of October. And at the same time, they've been so reliant on the United States, which is also mulling their all embargo on diesel. Let's talk about a crude move this morning. 103 1% positive, five out, 6/10 of 1% around nice. A lot of buzz about how much crude is actually getting through the strait of commerce. I think a lot more attention needs to be on how little Iranian crude is getting out of the Strait of Hormuz. So when it comes to diplomacy and the contours of of leverage right now, you can make an argument that the US is in control of what is coming in and what is coming out Australia from us. They have been able to really go along, along the sidelines and really help some of these ships get out that are non Iranian. The blockade is working and at the same time you do see the Iranian regime start to really tighten the controls on banks, on government buildings and try to make sure that they are holding on to the electricity. And in that sense, the economic sanctions and the blockade are working. But if you do want to transport in and out, it's going to cost you a lot more. And it could be a lot more coordination with the United States. We'll get you some analysis from Bank of America in just a moment. Three hours away from the up and about the cash show, but not too far away. Let's get you some single name, some morning movers. Vonnie Quinn has more. Hi, Vonnie. Hey, John. Some positive news for Boeing investors this morning. That stock down about 14% year to date. Well it's higher in the premarket. It won the new Navy contract. The Pentagon contract that's worth about $20 billion plus for the new Navy fighter jet the Top Gun jet. That's also combined with last year's winning of the new Air Force jet, makes it what Richard Bellavia calls the master of the universe. Well, this year I beat out Northrop Grumman. Last year, of course it was Lockheed Martin. So that's why Northrop Grumman is lower. Next up, let's take a look at another stuff that is higher pre market. Now if you like your weekends enjoy them. What the because Robinhood is adding trading on weekends not just for some stocks but also some ETFs and also some perpetual futures on some cryptocurrencies. So a lot of expansion going on there. We are expecting of course, other markets to add 23 hour trading or other expanded trading sessions over the coming months and years. But Robin Hood is getting there first. If you weren't happy with the extended hours, you can now trade all the time. And then finally, let's take a look at a company that's on the coalface of the transition to AI. So this is concentric. It's trying to get rid of humans to a certain extent for back office and customer service operations. And it turns out that that is expensive. So the stock down after it reported mixed results. It obviously had a huge increase in revenue from its AI tools, those customer service and back office AI tools that more people are now using. But of course, that costs some money. And so you have that stock down about 10% is already down about 40% year to date. Funny. Thank you. Thanks for the update Vonnie. With some morning movers. More from Vonnie in the next couple of minutes on a right now this morning, OpenAI are calling for patience ahead of a delayed IPO. While we are going through this period of adjusting to this new level of capability and the new safety requirements for that, we just want to get our feet under us, make sure we understand how to operate in this new way without the pressure of being a newly public company. And then I think we'll be public at some point. The company looking to raise at least 30 billion in a new round of funding, seeking a valuation of around .4 trillion. That's why the New York Fed president, John Williams, signaling one more rate hike, could come later this year, adding there is no urgency for tightening the probability of a rate increase at the October FOMC meeting, dropping to nearly 50% following his comments. And finally, Brent crude holding on to triple digits, at least for now before that contract row. As the Middle East flows near pre-war levels, JP Morgan and Goldman Sachs reporting crude shipments have rebounded to 98% capacity, while diesel and gas hit 3 million barrels daily. And Goldman, in their note, was talking about what you were just saying, Jonathan, the divergence between the fall of the Iranian exports and the rise of other exports of other Gulf countries that are able now to get through. But this is the key thing to focus on this with. JP Morgan said higher crossing should not be mistaken for improved safety. Rather, they reflect the industry's increasing ability to operate under sustained risk. So the industry is basically saying this is the new normal. So I need to adjust how I'm going to be able to get product out at the same time. Maybe that's why prices are still quite elevated, not dropping below 100 for Brent because it is costing more to do business and to get the traffic going. And the price of our product is not coming down with it at all. Let's stick with them, as do the Financial Times reporting. The Trump administration is holding crisis talks on the proposed diesel export ban, as prices hold near all time highs. Francisco Blanch of Bank of America writing the outlook for diesel remains bullish for the balance of 26, with elevated prices likely required to prevent inventories from falling to critically low levels. Francisco joins us now for more. Francisco, welcome. You've seen the proposal, as you've heard the debate over in Washington, D.C., I imagine you've done some scenario analysis. What do you imagine a potential band might look like, and what would it mean for prices in the near and medium term? Um, hey, John, great. Great to go to your program again. Um, we've, uh, we've looked at different things. Um, one of the issues with the band is, is that you might end up creating shortages in parts of the US that are importing, uh, diesel. So you have to is, uh, if you were to this ban, you would need to, uh, do it in conjunction with, um, frankly, ample, uh, shipping capacity within the US. And, uh, as I'm Marie just pointed out, shipping is complicated. We have record shipping costs right now. You need to move vessels to the US to get, uh, those do US Gulf Coast refineries to transport the diesel to a parts of the US have been historically dependence on foreign foreign fuels. So that's number one. Number two, you have to be careful about the impact on gasoline markets, uh, because, uh, you can trigger a reduction in, um, uh, crude runs in the US, which right now are the highest in the world, I may add. Uh, the USS has been, uh, of course, making a lot of money, uh, by exporting energy. And it's had a massive increase in market share across, uh, all major, uh, thermal fuel products. But, uh, of course, under them, uh, you have less of an incentive to run those refineries. Uh, you would likely see some of them going into, uh, maintenance. And that might also creep up the price of gasoline. So there's a few considerations. And then there's the impact on allies. Right. Um, and if the Europeans would agree to release their strategic reserve of, of, uh, diesel, um, uh, right at this moment in front of the winter, uh, to, to help mitigate those negative effects. So those are the three considerations, I think, right now, um, in order to, to, to make a, uh, a decision going forward. Diesel. Well, let's sit on the US customers for a second. That's Europe, that's Latin America. This Financial Times report says that officials have briefed foreign allies, including the United Kingdom, about the possible disruption to their supplies. Do you see, then, the European Union actually tapping immediately the supplies they have built up their reserves when it comes to product. It is possible it would be, uh, effectively an emergency, right? I mean, if the US bans these oil exports, the Russians have bamboozle into the end of October, uh, and gasoline to next year. So, uh, it would be definitely, uh, I think, uh, Um, uh, he definitely qualifies as an emergency situation. The question is whether it can be done before, uh, the US triggers that, uh, export ban. Uh, we've heard frothy B-roll from the International Energy Agency saying that there was not consideration for further releases. At the same time, the SPR has announced the uh, 40 million barrel, uh, release. Uh, so, uh, you know, I think, I think there's all kinds of debates going on, uh, across governments. Uh, but the react to the matter is, uh, fuels are coming back. As you just pointed out, we are seeing, uh, pretty high number of crossings. Uh, question mark is how long will that last? And it said related to the ongoing U.S. Iran negotiations or, uh, maybe, uh, the US has finally been able to wrestle control away, uh, of the strait from Iran, in which case I think we would expect flows to continue at a higher rate. Um, but those are some of the more important considerations. What is really, uh, behind the uplift in vessels, uh, in the Strait of Hormuz. Um, it again, is it just the US, or is maybe Iran is also, um, kind of, uh, pulsing while all the energy. Well, what do you see in terms of the data we heard from Goldman JPMorgan when talking about the fact that they are seeing an uptick of Persian Gulf supplies, but really not an uptick at all going down when it comes to Iranian exports. Francisco, do you think the blockade is working? Well, the blockade, the numbers, uh, clearly show the blockade is working. Um, uh, the question is whether it can continue to work. And the other point you made, I mean, not only you have to face shipping costs of 20 plus dollars a barrel. Uh, you're also looking at two aircraft carrier groups, uh, from the US having to maintain the system here. Uh, which which, frankly, is also a very expensive, um, a very expensive process. Um, and I think the question is whether a different arrangement might just be a lot more convenient. I mean, if we were spending $40 a barrel to try to get, uh, oil moving in the Strait of Hormuz, uh, could could we find consensus around, uh, some some other, uh, arrangement that, uh, brings down those costs through magically, uh, maybe not to zero like it was before, but maybe just to a few lines for Saudi Arabia, then. Do you think they're going to rely more on the east west pipeline going forward in the future regardless, and going through Yanbu? Well, I think that's that's definitely an option that that Saudi Arabia's how to for a long time. The challenge there is that we've seen the Houthis, as you know, taking control of, of, uh, important, uh, outposts in the Strait of bubble Mandeb. So it makes it hard for Saudi Arabia to route, uh, route, um, use that route for Asia. And if you have to go around, uh, the Mediterranean and, and, uh, the Cape In South Africa, you're adding 20 days to your trip. So ideally you also want to have some arrangement with the who these, uh, where uh, essentially Saudi vessels can, can, uh, move over to Asia, uh, relatively freely. So I, I look I mean, there's, there's, um, you guys midterm elections coming up in a month. There is, um, you know, there's a lot of pressure on all sides to come to an agreement. Uh, China's inventories are falling, which is one of the reasons why Beijing made this time be more interested in trying to find a solution for for, uh, oil to get out of the strait. Uh, we've seen if you look at the onshore inventory data, we've seen, um, several weeks where inventories have been falling at 2 to 3 million barrels a day, uh, in China. And they have a lot of stocks, but but they are losing them very quickly. And I think that may have also urged Beijing to try to find some some solution here as well. Francisco, good to see you as always. Thank you. Complicated time. Just a little bit of relief on the margin. Francisco Blanch there of Bank of America. The push domestically at least, there's a conversation about a diesel export ban. But domestically that is only part of the bigger picture. The bigger picture is that internationally, the US is putting increasing pressure on the Europeans to release crude product. And you could see it in the words of Energy Secretary Chris. Right. The Central European member countries have released only a fraction of the crude oil and petroleum products they pledged, going on to say, we urge every member country to fulfill its commitments. It's something that have their blast. Bloomberg's very own suggest in the last week or so, the maybe this domestic debate exists to put pressure on the Europeans to release crude product of their own. Well, that would definitely help in terms of bring down the price internationally. And then that would mean that that would relieve some pressure domestically for this president that maybe wouldn't have to go to the embargo, which obviously the white House is concerned. What does that actually mean, then, for gasoline prices, which hit everyday consumers, not just the truckers when it comes to diesel. So there's a lot of considerations right now, which is why going into the weekend, there was lots of talk. I was hearing that this might happen before the Sunday shows, and it looks like they took a step back and really wanted to assess the impacts, because this is not a silver bullet. This would be just a Band-Aid. And the timing, the timing to get crude prices, or rather petroleum product prices lower in the near term before they inflect higher off the back of this proposal, because we're uncertain about what it means beyond just several months now. Exactly. If you want to time this perfectly before the midterm elections, there, I imagine, are running numbers because, as every analyst said, you would see instantly a drop in diesel prices, but then potentially they will take higher in a few weeks after that. So when do you time that is that two weeks. Three weeks. We're less than five weeks away from the election this morning. Positive by 4/10 of 1%. Let's get an update on news worldwide with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. The crown prince of Abu Dhabi leading a $300 billion sovereign wealth fund to override Iran's control over the Strait of Hormuz. The wealth fund is becoming a key vehicle for Abu Dhabi's Zero Hormuz strategy to ease its dependence on the waterway. Apple is expanding into the smart home market, preparing for a new product line up on October 13th. People familiar with the matter telling us here at Bloomberg, a new smart home hub, is at the center of the strategy, alongside an update to the HomePod mini and a new TV set top box. Manchester City artificially inflated its revenue by more than billion over nearly a decade. An investigatory panel finding the team committed almost all of the 115 violations it was accused of. Man city now faces severe sanctions that could include a huge points deduction or expulsion from the league. The club plans to appeal the verdicts. And that is your Bloomberg brief. John thank you. So there will be a process to appeal. And at some point there might have to be a punishment. And that's where the debate is right now. If they fail on appeal and the charges and the verdict seems pretty brutal. What is the appropriate punishment for that sports franchise? I don't know. Do you just ban them? How can you do that? What happens to the fans? What I want to know, I really do not know what the appropriate punishment is, but that's going to be the big, big debate for this particular club and this football league going into year end. We'll talk about that later. Up next on the program, a hawkish lead at the Federal Reserve. Monetary policy uh, remains somewhat accommodative. Further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. Up next, Terri Weisman of Macquarie live from New York City. You're watching Bloomberg Surveillance. Equities this morning, just about unchanged on the S&P 500 on the Nasdaq as well. Slightly negative ten tenths of 1% in the face of this a 30 year yield in the last 24 hours, hitting the highest level since 2002. This morning, the yield pulling back just a little bit, still holding up to 556 on Thursdays and a Savannah. This morning a hawkish lead at the Federal Reserve. Monetary policy uh, remains somewhat accommodative. Uh, financial conditions are rather accommodative. Further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. We want to support sustainable, durable growth. So here's the latest. This morning fed officials setting the stage for financial tightening ahead of today's PCA data. Inflation concerns continuing to keep Treasury yields near multi-decade highs. Terry Weisman of Macquarie writing bonds suffer on the lack of visibility on the deficit and the perception that the global conflict is endemic. Terry joins us now for more. Terry. Good morning. Good morning John. That line is quite powerful. The perception that the global conflict is endemic brings some life into that which the left the word of the Altus was meant to reference global conflict in general. So it's not just about the US and Iran, it's about Russia and Ukraine. It's about the potential China and Taiwan. But the point here was that one of the things that I think investors are losing sight of is that global conflict is inflationary, but it also, uh, raises deficits. And I think in the US, we've lost track, to tell you the truth of just how much this war has been costing the US government. Uh, I know there's a website that tries to track it, and it was up to something like 125 billion recently, but that's not an official number. We really don't know how much it's going to cost in terms of the replenishment of armaments at that, etc.. So there is a real effect from the war on yields, because it is something that keeps the deficit from, from adjusting lower. Uh, I think it keeps the government from, from, uh, putting out a program of deficit adjustment because they really just don't know how this war will cost, ultimately. And of course, that's not the only problem that we have in the bond land. We also have the premise that all of these hyperscalers have been issuing into the market this year. And as a result, we are seeing a flood of issuance, and there's very little Treasury Department can do to mitigate that. That and its effect on bond yields. So can we sit on the fiscal issues first. You see some of that in the French-German spread 120 basis points in spread it right now. And I think you can make the argument to some nations with limited fiscal space have been hit. Have we seen that leg of the trade in the US curve yet? Is that the next leg? It may be, but I don't think it's I want to be very careful here in how we we express our concern around deficits and debt. This is not about the premise that the US will default. This is not about the idea that we should be pricing in a higher risk premium for the sovereign, for sovereign risk. This is simply about supply, right? You can have a higher deficit. You can you can have more supply of bonds into the market. And you will raise yields as a result of that supply. Even if no one worries necessarily about the prospect of default. In fact, if you look at CD's spreads, they have not widened, seeming to suggest that this is not a rise in bond yields that is associated with sovereign risk. The other interesting thing is that we haven't seen a blowout, an inflation break, even if people were worried about a default. They would also be worried about deflation, because one of the ways that you would cure financial stress at the level of a sovereign is to inflate. But we're not seeing a big increase in long term inflation expectations waiting to correct. And so exactly. So I think this is really just about supply. Ultimately that's what the signals in the market are telling us. So you think this is orderly and not untethered. Well, it doesn't necessarily have to be orderly because we have speculators in this marketplace and speculators don't necessarily want to take advantage of order. They want to take advantage of this order, and sometimes they create it. So when they see yields rise and they know that a lot of, um, uh, you know, a lot there's a lot of length in the market, let's say they'll push it, they'll try to wait and see if they can unwind that length. And of course it can work the other way. If they see a lot of short positioning, they can try to squeeze that as well. Then you see yields come down. I don't know which way they'll go. The yields will go. I can tell you there will be a lot of volatility as a result of speculative behavior. Because when you see big changes, people try to jump in and take advantage of it on both sides of the market, often a point where high yields create so much pain that the move becomes self-limiting and the money returns. Yeah, to bonds. That's what prices are about, right? They're supposed to equilibrate supply demand. So if you do have an imbalance, you would expect the price to move. And it eventually cure that that imbalance. And then prices stop rising. But if what you're referring to is the cure that comes through the political channel as opposed to the market channel, that's another interesting story, right? We have mortgage yields in the US potentially pushing towards 8%. If yields continue to go up on the ten year, and if that happens then they start to break north of where they were at their highest during the Biden administration. That puts puts a lot of pressure on the president administration to do something. And then we might see maybe some fiscal adjustment. We might see more intervention in the bond market. We may see an end to the war if the political pressure gets very high. I would submit that I think the biggest political pressure on this government and this US government right now is not the price of oil. Yes, it hurts CPI, of course, but there, because we are an oil exporter, there's a lot of things we can do to mitigate the effect of higher oil prices. The export ban is one thing. Just reducing excise taxes in another. The bigger problem I think, is the yield story. But they're not reacting to it. We're not seeing Trump react the same way he did during Liberation Day. You mean to the oil price increase. No to bonds going higher. Well it's going well. I think he has instructed the Treasury Department to find ways to mitigate the rise. And the buybacks are that way. And remember, the first pass was smaller than the second pass, which was smaller than the third pass. So are they getting more proactive here? Absolutely they are. But remember the Treasury does not have a target for yields. So it's very difficult to come in and say we're going to interfere in the bond market because it sends a signal that you want to interfere in markets generally, which are picking losers and winners. And that's generally a no no for any administration. However, I do think there's a very good reason for why they should try at least to manage what's happening in the bond market. And that's because there are these corporate issuers. The hyperscalers are issuing like crazy. They need to finance this AI driven infrastructure investment cycle. They need to build it out. In fact, the government is depending on it because that's what's going to drive growth and eventually lower inflation eventually, eventually lower yields. So how do you manage that? How do you make sure that that happens. You try to crowd it in. You try to step back from the Treasury market through the buybacks and create space for these issues. Terry, good to see you. Thank you buddy. Terry Wiseman of Macquarie, the second downer of Bloomberg Surveillance. Up next. We're entering the seasonally weak period for the market. We're sort of overdue for a correction. I do think you'll see dispersion when you do see a lot of that continued CapEx from those large hyperscalers. The eye trade is is vulnerable and has another leg lower. People are already kind of wondering what's what's going to break here. This is Bloomberg surveillance with Jonathan Ferro, Lisa Abramowitz and Annmarie Horden. You have got one more day left of Q3, and I'm about to September live from New York City this morning. Good morning. Good morning for our audience worldwide. The second tower of Bloomberg Surveillance starts right now. And your price action. The scores look like this. This morning. Equity futures on the S&P 500 just about unchanged on the Nasdaq down by a 10th of 1% in the bond market. What a month it's been. What a month it's been the 30 year this morning of five 5670 yields just about unchanged. The 30 year fixed mortgage surging to 7.3%, the highest since November 2023. That headline cross in just seconds ago, and guests on our program are saying, what's next in sight for when it comes to mortgage rates? 8%. I have to say, if you are five weeks away from a midterm election and you have record diesel prices, you have mortgage rates higher than 7%. This does not bode well for the incumbent, especially from a president who came in, was very attuned to what mortgage rates are doing. At one point, there was going to be a housing crisis. They were going to just say it was a national crisis to try to get the market moving again. These are not good numbers and they're only going higher. This is difficult to internalize right now. If you just take the nominal 30 year yield to slice up the yield curve, just pick up that piece of it and take the chart as far back as you possibly can. And we'll look at it back to the early 2000. The last time we were up here, there are people on trading desks this morning on Wall Street who weren't alive. They weren't born the last time the 30 year yield was this high going back to 2002 as people just graduated college. You've taken those seats right now heading into full on banks across this nation, across Wall Street, and they haven't seen yields this high before. This will look very abnormal to them. There is also a cohort right now on Wall Street who believe this is a return to normal. The abnormal part was the previous 1015 years. And we come back to where we were before. And maybe we can hang out at these levels. Maybe we can. And at the moment, given what we see in rising bond yield, it's a host of issues. And the reason why we have been higher for longer this entire year. You talked about it early. That line in the sand at the end of February, when the United States decided to embark on what originally was supposed to be a short excursion, which is now months, going into eight months of a conflict that has pushed up energy prices and has everyone concerned once again about deficits, the closing low on a ten year yield. This year it was Feb 27th, the last trading time before the war started. And then it's just off into the right. Since then, up like something like 130 basis points, highly, highly correlated, highly correlated. And this is what the Treasury Secretary says all the time when asked about this. And this is why it makes the feds problem right now so difficult. And we heard this yesterday from a number of fed officials. They cannot reopen up the Strait of Hormuz. They cannot get oil flowing again at the same rate as it was normally. So how do you fight this type of inflation? But at some point it's not just an energy shock when we see it in the Conference Board. References to prices, high cost of goods, services, oil, gas in particular rose to new heights. That's what they said yesterday. This won't bring many people comfort this morning, but it is global in nature. And if it was a I could try to see the weakness in the dollar. And you don't. You've just seen one of the strongest month for the US dollar going back to June of this year. There are some notable pressure points starting to emerge. That one, I should point them out. We've had six days of high yield spreads widening. We've added about 40 to 50 basis points to that spread. Now, if you look at the overall level, 300 down thereabouts is still pretty tight historically, but we're moving in the wrong direction. I think you can look too small. Can't suppress from rates as well. I think maybe you can point to the financials. Might be a tech plan there too, but the banks have had a rough ride down by 10% since the mid August high. So all of that started to build up heading into October and Q4 heading into October. And that leaves the fed with another question. Do they go and hike in October, I think. Yesterday was a clear line from the New York Fed president basically saying it is not as urgent. It's still hawkish, but it's a dovish to your point that potentially we're going to get from the whole group of people. There will be another hike, but potentially we can wait till the end of the year. Maybe that's a little bit of easing on some of those other trade equity futures. Sounded negative just moments ago on the S&P. Just slightly softer on the session so far. Coming up this time we'll catch up with Sarah Hunt of Alpine Saxon Words with Wall Street looking to avoid a third straight day of losses, Bloomberg is not a candle on President Donald Trump's morally binding agreement with SAC leaders, and Amy Cabot drops off Morgan Stanley with the price of gold on track for a losing month. We begin this hour with stocks flat and yields at fresh, multi-decade highs ahead of the latest inflation data. Sarah Hunt of Alpine Saxon, of Woods, writing while a rate hike or two might not slow AI CapEx, a shift higher in the entire curve and a rising long end may be more problematic for the rest of the market. Sarah joins us now for more. Sarah. Good morning. Good morning. Are you starting to see those problems emerge? Well, I think you're starting to see concern about them. I mean, you could almost say that one of the reasons that you could back off on October is that the whole curve has shifted higher and shifted sort of dramatically higher in a fairly short period of time. And the question really is, again, to the point of what is can the fed really affect the things that are driving inflation right now? And the answer is on the margin only by hurting demand. And that hurts a whole lot of other things. It doesn't solve the problem of higher energy prices. So I think that you're starting to see concerns about once that whole curve shifted from the three year up over 5%, I think that was one of those lines in the sand. People have been talking about 5% on the ten year and then the whole curve moved. So, you know, I think that that does obviously create some problems in small cap land. It obviously creates some problems in different areas that are more interest rate sensitive. The economy as a whole is less so, but the consumer is not. Can we isolate 30s and just talk about that and just maybe sit on the last 24 hours? Crude was down. The data was after the pit didn't come in. What do you think that speaks to? You know, that's a tough question to answer. I think that to some degree, the fact that there is a, um, a buyer in the federal government may have some effect on what's going on there. There may be some issues with people looking at the ten year is more indicative than the 30 year, because it's clear that the US government wants to stop trimming out debt and have things on the shorter end. So it's hard to say what's exactly going on, because a lot of the dynamics about the 30 year have changed over the last, over the last few, it's looking increasingly untethered. And there are some supply stories out there. SoftBank in high yield. In the last week or so you had Paramount as well. On finding a bit of that offering. One of the biggest we've ever seen for that matter in investment grade. Higher spread tonight to widen just one that's more than just supply. Six straight days of it now. When you see a 40 to 50 basis point move in a week in high yield spreads. It's notable. Usually there's something going on that beyond just a supply story. Do you think a growth is starting to emerge just on the margin in a way that it hasn't done in the last seven months? I think you could look at all of those things and say, yes, because I think that you also we're seeing a come down of oil prices and energy prices when things had calmed down a little bit. Now it does sound like there's some traffic getting through. Even though we don't, we haven't seen anything major. It does sound like more traffic is getting through. There was some notes out this morning on that, so that should help on the margin. But the fact that you have that problem and the fact that you have the Russian Ukraine problem, which is really doing a number on diesel because that's being a refinery issue. And diesel has become products have become even more important right now than the oil price. And I think that that's something that's much harder to fix, because collectively the OECD is not been a fan of refining. So there's been much more closures. There's no opening. You can't open a new refiner. So that's becoming a real sticky point. And that, I think, is if you want to talk about what could scare you for growth, it's things like that because that that's transportation. It moves into everything else. It moves into other goods. The cost of goods goes higher everywhere. Is that why the fed is going to have to maintain this bias, this hawkish bias? Because they are starting to see this is not a shock. This is starting to move into all of these prices we consume. Well, it's again it's how much does that affect if I raise short term rates how much does that affect that problem. Because if you do get some sort of way of solving this, or people start thinking, okay, we don't have to worry about flows of oil anymore, then you could have those prices come down fairly quickly and then it could start to unwind. This isn't something that is necessarily a permanent high unless you don't get a change in energy prices. And there was an interesting point made earlier here this morning that I hadn't really thought about, which is interesting as an energy analyst, which is if you go back 20 years, oil prices were you're not that far off, but the product prices and the oil price itself isn't that different. But the product prices definitely are because you used to have oversupply of diesel. You don't anymore. There's all sorts of places where that's more of a pain point than it used to be. This is a folk story. Are we actually going to see something is missing through much of this year? We had an energy shock, a rate shock. We have avoided a growth scare. Mhm. I just wonder how you play that equity story into year round with those themes in mind. Just the rest on the margin. You start to see some deterioration in the outlook for economic growth. That's not been the story this year. I want to be very very clear about that. We've had nominal GDP and massive competition for capital, underpinning huge CapEx and investment in this economy. That's meant yields have been much, much higher. But at some point you start to wonder. You see energy product prices where they are. You see access to capital is becoming increasingly uneven. You see the move in banks, the move in small caps, the move in high yield. And you wonder if that's got life. Well, there's also I mean, to the extent that there is a point at which you have people worried about so many different things, There's a question about the whole AI slowdown. Is that helpful or hurtful if they slow down on CapEx, is that actually helpful if they're slowing down for reasons that seem like good reasons, like, oh, we want to be careful. Oh, this as opposed to oh, demand is slowing. There's going to be that there's a tension there and that, you know, maybe we'll see something that comes out of micron later today. There's going to be real questions about demand going forward. If the tech story has a wobble on top of all of these other things, I think you see a lot of volatility. Now, whether or not that will stay is because it has been up and down for a long time. I couldn't answer, but I definitely think that that's one of those things that if you layer that on top of what's going on now, you could have a very bumpy October. I've asked this question a week. The weight of earnings, the weight of this market on the shoulders of earnings going into the next few weeks, just how much pressure is, just how much, how high is this bar heading into the next few weeks? Atlas is earnings, right. That is it right now because that has been the story that has overcome all of these other concerns is that it's okay because earnings growth is there. It's okay because that is has been the story every time. We've had other problems that are coming in on the macro front, and if you start to see that become a real question, then I think you have you have a different kind of volatility than you have right now. Sarah Hunt of Alpine Saxon, which is going to be sticking with us October 13th, is when you start to hear from the financials. You'll hear from the banks. I believe the 14th is when you get the next CPI print. And in many ways, unfortunately, we're doing this again. It feels like the next move from the fed is going to hinge on that one CPI print that we get in a few weeks time, and then at the end of the month, when you get closer to the midterms, the midterms and the outcome of the midterms will set the stage for policy around I, or at least the perceived direction of policy around the tech story. How to get to 28. But likely the outcome of the midterms is going to be a basically a split, a split government, which means can they actually have an agreement when it comes to Republicans and Democrats? When it comes to I already hear things being floated like, maybe we need to roll back any sort of tax credits to build a data center. Basically what the president did yesterday was set the table for at the minimum, we're all going to discuss the problems, but there's no new real legal action that you can hold on to. Equities down just a 10th of 1% on the S&P 500 on Washington. And the pressure on this consumer right now, a headline crossed on the Bloomberg terminal a little bit earlier, about ten minutes ago on mortgage costs in this country north of 7%, the highest level we've seen in several years. Sarah mentioned the price of diesel and crude product right now. The message into the midterms gets really difficult. And I mentioned earlier this week, the year that we could have had the year that we didn't have before that invasion in January, February, when you have the lows of the year on tens, which was right before this war started, there was some optimism around the housing market and mortgage rates coming down to five and getting away from the pressure that had been building for quite a while, and the war really set the time to go in a different direction. We've heard the Treasury Secretary say a number of times Wall Street has done really well. Our focus is on Main Street, while Main Street means lower energy costs, lower mortgage rates, so people can get on the housing market. And something this administration wanted to do was try to really trim the fat that the federal government had. Remember, they came in. It was about Doge. Part of the tariff story was using that money to bring the deficit down. All of that feels to just have gotten away from them this year. And the timing of this is really challenging for them ahead of an election. Let's get you the latest on that headline and more with your Bloomberg brief. Vonnie Quinn has the latest. Hey, Bonnie. Hey, John. Yep, a few more details here. U.S. mortgage rates climbing for a sixth straight week to an almost three year high. The rate on a 30 year fixed rising to 7.3%. The rate on a five year adjustable surging to 6.47%, the highest in more than two years. As rates rise, applications are falling. They're down 6%. Last week, the Supreme Court allowing the Trump administration to resume deporting undocumented people to countries other than their original country with little, if any, notice. The court will hear arguments on the issue in December. The order lifts for now. An appeals court decision that found migrants must have a chance to object. Deep sea is releasing software developed with Huawei deepening their push to replace Nvidia technology. The startup plans to deploy at least 160,000 of Huawei's most powerful accelerators at that data center in Inner Mongolia. And that is your Bloomberg brief. John Donnelly, thank you. Thanks for the latest. Up next on the program, tech leaders get in line. The name has been officially changed by the biggest, the smartest, the greatest people anywhere in the world. It's been officially changed to superintelligence. So I think it is worth highlighting the benefits of AI. Uh, which we'll see for a minute. Thank you. The next Tyler Kendall joins us next live from New York City. Good morning. As you had 60 minutes out from ADP. The appetizer ahead of the payrolls report in a few days time. Sneak peek at the payrolls report, by the way in our survey. Median estimate right now is 90,000. Previous number 162. A lot of attention is going to be on wage growth. Just how are things. Does this data validate what we saw. Reinforce the perception of how strong this economy is, which is what we saw in the PMI a week ago. That was a very hot PMI. You're going to start to see that the data our sweat didn't see in the data in the last 24 hours. You can see in job openings a little bit dated rather mind you, but still that's the data we're looking for ICM later this week too on the earnings side. Micron micron reporting a little bit later on after the closing, we talked about the protection, the insulation coming from corporate America. Without this, I tried. This market is in a very different place. Equity features on the S&P 500 just about holding the line. Just about unchanged on the S&P this morning. Down by 10th on the Nasdaq down by third. In the bond markets tens and 30s at the very front end of the curve. We did see some money come in tattoos yesterday off the back of soft of expected data. And on the margin relatively speaking a dovish take from the New York Fed President John Williams. Just opening the door to one hike this year and maybe not two plus going into 2027. Looking at the long end this morning, reaching 560 for the first time since oh two, we're back down to about 557. In the last 24 hours, we've seen a major move at the long end of the curve 30, setting the tone for borrowing costs in this country right now. If you're looking for a mortgage ten years and hour off, it's painful. We're looking at a 30 year fixed north of 7% and some. It's painful. I spoke to a mortgage broker yesterday. Just text them to see how the market was because I saw 7%. I imagine you got a quick reply and I got a reply. Yeah, I did get a quick reply. And uh, the answer was it's not so great right now. The housing market, it's just there's nothing happening if you're sitting on a 2 or 3% mortgage, like some people who are absent from the show today, guess what? You're not leaving. Even if you need another bedroom, guess what you are making do. So the supply is not there. And then if you're trying to get on the housing ladder, are you going to come out with a seven north of 7% mortgage? Absolutely not. Two different economies. You've got a freezing cold housing market, and they've got a red hot economy off the back of this I and a Savannah this morning. Tech leaders get in line. The name has been officially changed by the biggest, the smartest, the greatest people anywhere in the world. It's been officially changed to superintelligence. So I think it is worth highlighting the positive benefits of AI. Uh, which will see. Thank you. So here's the latest. Nearly two dozen of the biggest names in tech signing a voluntary AI safety pledge, pushing safeguards and independent audits, but stopping short of being legally binding. Tony Kendall has the latest this morning. Good morning Tyler. Hey John. Good morning. Well, this agreement puts air companies right at the center of policing their own technology with the pact saying that the industry will meet on a regular schedule to set best practices, according to text released by the white House. The agreement is encouraging these companies to implement four layers of control, which includes the use of third party auditors. President Trump compared the one page document to, quote, almost like a constitution, and added it would be morally binding. It is the result of a packed lunch yesterday with nearly two dozen tech leaders. You saw Elon Musk, Jensen Wong and Dario Day, who of course has been leading calls to pace the technology and made stops on Capitol Hill yesterday too, because it's worth mentioning that House speaker Mike Johnson was also inside of that room, underscoring what a political issue this has become. As we, uh, see that yesterday really stood in stark contrast to any legislative efforts that are happening on Capitol Hill and Quinnipiac. Poll finds that 71% of American voters say that they would prefer a candidate that chooses stricter guardrails. As we head into the midterms, political pressure like that is no doubt contributing to this shift from President Trump to even engage on the topic of AI safety. After repeatedly denying risks, though, John, it's clear that the white House is trying to push a rebrand here, not just with that executive order mandating that federal agencies use the term superintelligence, but also with this big event yesterday here in Washington unveiling a new AI enabled tool geared at making it easier for the American public to interface with the Government of Canada with the latest in Washington. Thank you. Sarah Hunt of Alpine Saxon Woods. Still with us around the table. Sarah, where would we be without a handful of the biggest companies on the planet going on trillion spending spree. Why would this economy be what this market be? I think you would not be in. You certainly would not see the headline indices sitting where they are. I don't think you would be in a place where the economy was considered as strong, because I think that a lot of the backbone of that spending is what's driving all the other data that is strong. So I think that there's a definite, um, push because of this, that is countercyclical to the other things that are going on. And if that wavers, which is what we were talking about earlier, then I think that you have much more volatility because people are counting on that growth to paper over a lot of the other problems, in the hopes that the other problems get better before that growth slows down. Does it waver? Tyler was pointing to the polls were five weeks away from midterm election, but really, it's all going to be about 2028. Do you think there's going to be political roadblocks to this trade? It's an interesting question because I think it's much, you know, everybody wants to talk about what the risks are right now because they've brought that to the fore of, of of what's happening now. I don't know that anybody wants to see the economy slow down to the extent that stopping or slowing this massively would be an issue. I think it would be an issue for both parties. Bannon, Senator Bernie Sanders. But I think a lot of people I think they want. But I mean, I don't want to be facetious, but it's easier to say it now when you're not in a position to do something about it, when you are in a position to do something about it. What we found with politicians collectively is that once that happens, maybe that nuance changes a little bit and all of a sudden they're like, well, I don't want to be the one that just just completely slowed the economy down. I'll ask a question in a different way. What does this market have to think about 2028? What does it actually have to really think about 2028? There's a couple of there's a couple of Guideposts. The elections are going to be one. The midterm elections are going to be one. And then how what happens with energy. Because that's going to be that's going to bleed into everything else. And if that doesn't, if you don't get some sort of resolution and or some sort of change into 2027 where you just think the prices are going to stay escalated, people start to build that into a longer term forecast. Right now, they still, I believe, are not building that quite in the longer term forecasts. As that start to change, people will start to think about you can see the runway for CapEx. I think to some extent, a lot of people willing to ignore this because you can right now after the midterms, depending on the outcome, that can really set the tone for the path forward for the primaries and the campaigning for the next two years, which was set the time for how people perceived the trajectory of policy, how they're thinking about policy, looking at several years. Absolutely. And I think you just look to the States. It's not just the blue states like New York, it's the red states like Texas. You already see a lot of individual constituents pushing back on the idea that they don't want these data centers, and that is moving the margins at the legislative level, at the state. And at some point, does that just bleed into Washington? Not sure. Right now is not here. So someone's got to spiral down the doom. Whatever. I'll attempt to do that now. At some point if it starts to hit labor and you're not seeing that clearly, but at some point, if it does, you have to start thinking about capital gains taxes. You have to start thinking about corporate taxes, too. You have to start thinking about taking the pressure of income taxes and finding that revenue from elsewhere. Thank you. Yes. And I also think that you've got I mean, we talk about these things as if the CapEx is linear and it's also easy to do. It's not. You're seeing the pushback on power prices. You're seeing that you're seeing the bottlenecks in building power, and you're seeing some of the areas where that's going to be. I mean, it's almost like I said, if you get some sort of a slowdown because we want to, not because we have to, then you have a way to maybe get the but get the snake get, you know, get the mouse through the python a little bit easier. But I do think that there are some questions about I mean, there's already questions about capital allocation into the space at all. That is, maybe it's too high, maybe it's not. But I, I do think that a moderation because of quote unquote good reasons, because it's going to be a lot easier for equity investors to accept then, and bottlenecks that become other problems. This conversation feels very distant right now, but it can feel quite imminent depending on the outcome of the midterms in the next month. Yeah. Your question to Sarah. When does we need to start caring about or when does this matter for this trade? I think it's November 4th. I think it's November 4th, and you can see where the makeup of Congress is. And then obviously this president becomes a lame duck and everyone's going to be looking to 2028. No matter who you are. You have to have some sort of plan on artificial intelligence to run in this race. Sarah, good to see you. Thanks for being here. Sarah Hunt there of alpine snacks. And what's up next on the program coming up in just a moment. It's a story that has rocked the sporting world. Man City Football Club facing potential expulsion after being found guilty of financial breaches. We'll get into that with the latest over in London and our team in our Bloomberg office. Plus, Vonnie has your morning movers. Madonna shares sliding a city council the stock to sell that name is down to the free market by more than 6%. Live from New York City. You're watching Bloomberg TV. It is the ultimate Bloomberg bro flex. I'm getting messages from terminal subscribers on on what their mortgage rate is. Oh, what are they? Are they going up like three for a month? Wow. It's pretty depressing stuff. Someone yesterday told me they have in the tubes. Yeah. People just time this market really, really. Well, they're logged in. They're not moving those people unless they really, really need to are not selling their home anytime soon. And even at that point, if you had to move what, you just keep it and rent because you see the rent prices right now. So that keeps it off the market. Do you think there's going to be correction in prices off the back of these high mortgage rates. And it's going to be offset by the limited supply, particularly those hot markets, particularly around some of those suburbs around the northeast. But these big cities and also the city itself. Yeah. Not only did I speak to a mortgage broker yesterday because I was curious, I also called, um, I also called a realtor and I was like, what's going on? And they said, look, people at the money, they're there. They're ready to go. Cash. It doesn't matter. The problem they're also finding is this other issue. No one's moving because they're on low mortgages. So basically the issue right now is there are a lot of wealthy individuals ready to get in want to buy. They don't have the apartments ready. There's no supply fixed right now. Just as of this morning, 7.3%, the highest since November 2023. Some political pressure comes with that. A lot of people are looking for a lower mortgage customer looking for lower energy prices. And we're just we're just not seeing it. We're not going to get. So it was promised by this president. That's what he ran on. He ran on affordability. I can get you on the housing ladder. I can make sure grocery prices come down. I can make sure energy prices come down. And they were lining up to do that. And then really, you know, I think Trump went for this legacy play in terms of wanting to duke the rise Iran. And that basically meant he's now stuck in this quagmire when it comes to this conflict. You have to think for this president who comes from New York, who was a huge developer when it comes to real estate, he says. This is the market he knows well. This is not what he wants, right? What do you think he thinks of this chart this morning when you see 7% on mortgages, that is not what he wants rates right now that's for sure. That's the latest on the mortgage front. Here's the latest in financial markets equity features on the S&P 500. Just about unchanged on the session on the S&P. Barely positive on the Nasdaq down by about a 10th of 1%. As we look to close out Q3 and the month of September in the bond market. What a month in Spain, what a year has been so far. Just pick out tens. There's a story on each point of the yield curve. But here's the story. The ten year so far this year higher on the year by more than 100 basis points. Lows of the year Feb 27th right before the war started. High since then by about 120 230 basis points on tens. A lot of the movers come in Q3, so we've had about 75 basis points of the move in Q3, and a lot of the move in Q3 has come in this month alone by more of a 40, close to 50 basis points higher on ten. A lot of pain has emerged in this bond market. Now you see in fixed income, you see it in cell phones. And people are starting to wonder, okay, what does it mean for growth? Can we afford to grow scared? Don't say it at the index level on the S&P 500. I think we can thank tech for that. You get micron earnings later. You start to see something take place in high yield. And I'm open to to ideas about what's happening here. I know we've had lots of corporate supply some headline supply SoftBank Paramount in high yield and is a factor here. But you start to see it from 30,000ft. Just this move show up and it's six days. And that's the longest daily move we've seen. It spread widening since January spread to the widest since March over that period in six sessions were wider by 45 basis points. If you looked at the level and I told you high yield spreads with 309, you say this no story here, there's no drama. I would agree with you if you looked at the move more recently. The move itself gets my attention just on the margin. And it's just a question. It's just a question right now as to whether you're going to see more pain like this emerge in the weeks to come, and just how much equities and that risk posture right now. This appetite for risk can stand up to wider spreads if it continues into year end. Is the final end of the year. Going to be more more challenging for the stock market as we see rates continue to grind higher. And as you mentioned before, this is a global issue. All these countries around the world, especially Europe, the United States, are going to be dealing with higher deficits, more spending. And guess what? It's going to be a lot more spending as well next year. Doesn't matter who wins the midterm election, which party comes out on top. And at the same time, even though we are seeing better data in terms of how much product is getting through the Strait of Hormuz, it's costing a lot more. And energy prices on WTI and Brent are still quite elevated. And then under the hood, kind of like the stock market. That's where all the action is. Diesel prices at a record. Gasoline prices still well north of $4 a gallon across the United States. This morning at 523, I mentioned that the low of the year was right before the war started, Feb 27th on a closing basis. And as you said in the time for a lot of things in this market right now. Check out crude this morning. Brent and WTI Brent at around 103 at night. See the picture of things. At least for the prices. We look at the front month. We're going to have some contract rule in the next 24 hours or so. So you're going to see Brent drop into the 90s potentially off the back of that. It's just mechanical. But mechanically that's a better story for the president to tell. But it's a sign that it's in the 90s than then. Triple digits heavier blast talked about. This is an opinion piece this morning. Brent above 100 thumbs down President Trump. Brent below 100 thumbs up president Trump. It's a psychological issue. But really consumers interact you know energy when it's at the price of the pump. You don't. That's the thing. You eat gasoline. Exactly. And prices aren't coming down quickly enough. They're not. And this is what the Federal Reserve is really concerned about. And we heard that from some officials yesterday. The fact of the matter is they cannot fix refiners. They cannot reopen up the Strait of Hormuz. They cannot stop Russia from having a diesel export ban. That's the only thing they can do right now. is this very blunt instrument at the end of the day. Who is that actually hurting? That's the price action cross now. So let's get some single name some morning movers. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Well, you don't see this too often where an analyst downgrades their call on a stock to sell from neutral but upgrades their price target. Well, that's exactly what's happening here with the Citi analyst on Moderna. Look Moderna has had a great year to yesterday tell us it was a 590% not so much this morning, down about 6% on this cold. Primarily that analyst saying, look, even if you price in 100% success for that new cancer drug, that that would only support 00 stock price. And look how far we've run up on Moderna 191 50. So it implies, well, less than 50% downside right now. Moving on to an AI company, or at least it wants to be an AI company is having a little difficulty getting there, or at least it's a costly experience getting there. Concentric down 9.6% after mixed results. So this is your customer service, your back office stuff coming a little less human, as it were. Right now, 50% of concentric business is through AI tools, and they're trying to expand that. They have been trying to expand that over several quarters. It's been a tough business. They are down 40% year to date, and they're going to be down even further in the pre-market. But they would say they're getting there. And finally, let's take a look at a company that won a contract. Boeing won the contract for the next Top Gun fighter from the Navy. It's $20 billion plus contract, and it beat out Northrop Grumman suffering in the premarket. Last year it beat out Lockheed Martin. And as Richard Abulafia, the noted aircraft analyst, says, this really makes Boeing now master of the new universe, having won both of those fighter jet contracts in the last two years. Finally. Thank you. Thanks for the update. More from Varney. In just a moment on our radar this morning, a commitment to morality, almost like a constitution in a way, and the biggest and the biggest people in the world signed that, and I signed it as president. And it really is a form of protection. I think it's morally binding. The president, Donald Trump dismissing the idea of new federal regulations on I signing an agreement with top tech executives committing to self-regulation, the accord carrying no legal weight elsewhere and not getting nearly half of its sales through Google and Amazon. Reuters reporting sales from the two tech giants totaled 2.16 billion last year, accounting for 47% of total transactions, the filings showing a heavy reliance on hyperscalers for revenue. And finally, it's the rise of AI consumer agents. We believe that things like dots, along with our models, will give people a whole new set of superpowers. You can get so much more done than you thought. Whether you're using AI to expand a small business, create more accessibility, or finding new ways to fight infection. We want people to discover that they can do things with AI they never thought possible. OpenAI introducing an early competitor to Matisse. Muse, the ChatGPT maker unveiling the agenda scalper code dots and these. There's a helper Johnson, that always has your back. Inspired by the cool versions of what we all watched in movies growing up. I mean, the rollout of this was very interesting because they look like cute little teddies. You know, you have when you're a kid, but apparently you can use them to maybe do things like find better ways to bank. So you're making more money. If you have money sitting in an account somewhere, maybe not in checking. Maybe you should put it somewhere that was talking about, you know, I mentioned banks being tapped by 10% on a set. You like obviously the technical factors in there, some cigarettes that people are thinking about. Other people. Eric Johnson of Cancer, pointing out he thinks this is a tech related story. In this two heading into earnings season, the pressure's coming on the banks from from this and that. Yeah. Then when I read this press release and I listen to Sam Altman and you can just have these dots working for you while you don't even realize they're working for you, what can you tell them to do? How can you save me money on the margins, etc.? I think that is going to lead to not just more competition in the banks, but also, um, you know, in the market for a light fixture. Can you find me the cheapest version of X? Scour the market, go at it, dot execute vine and see what turns out you want it to do that. I think I would yeah it's going to save me money and time. Why not. We talked about pressure. Speaking of pressure, let's turn to sports. The Manchester City Football Club is guilty on over 100 charges of Premier League financial breaches. An independent panel ruled in the club inflated its commercial revenue by more than billion between 2009 and 2018. The Premier League CEO Richard Masters, writing in the league's statement, quote, the disciplinary case and this decision are the most significant in Premier League history on top of the story. Bloomberg's T Adebayo joins us now from more from London. Welcome to the program. It's good to see you. Just breakdown what's happened here and what happens next. Well as you mentioned everyone is talking about this front man I'm Donny, your side of the pond to Prime Minister Andy Burnham over here. And essentially this is the culmination of a years long investigation into Manchester City. We had the first reports last week that they were guilty of 114 out of 115 charges that were brought to them. Now, we've heard from the Premier League's independent commission. The verdict is that guilty? Just to break down what's actually happened here for you, said the group of rules that are accused of breaking. They are the Premier League's financial Fair play and profit and sustainability rules. And essentially these rules say you cannot spend more than you generate. So if you're going to go out and buy a whole load of expensive players, the likes of Erling Haaland, you're going to build a huge stadium. You've got to have the sponsorship deals and the ticket revenue to back that up. And the Premier League is saying here that Manchester City didn't, to the tune of more than £900 million, .2 billion. Very significant case, we've heard from the Premier League CEO saying it's the most significant in Premier League history. A lot of anger here from fans, from football figures as well as politicians. Everyone is talking about it, but we're still waiting for that crucial decision on that punishment. Well, I understand that Manchester City will look to exhaust the appeals process, so I've got nope, no idea how much longer this goes on for, but just on on a potential for expulsion and what could happen here. I remember 20 years ago in Italian football when the events were relegated and there were other teams wrapped up in a different kind of scandal, but that was the ultimate punishment that came from the authorities over there. What kind of punishment are we thinking about here? What kind of litigation could we see from other football clubs? Well, it's funny that you mentioned you've been to some news out from them this morning. They are still facing dire financial straits a long time after that decision. But the precedent in the UK is a bit different. So our most recent example here is Chelsea. Last year they were caught having paid more money than they were supposed due to football agents. Now they self-reported. So they came to the Premier League and said, look, there's been an oversight under our previous ownership. They were given initially a six point deduction that was then removed on appeal. They had to pay a fine and they also had a suspended transfer ban. So that gives you an idea of the sort of punishment. But of course Manchester City still maintaining that innocence. And a crucial part of these charges is the fact that they have been found to have frustrated the investigation into them so very far from self-reporting. But another example, which has happened recently, in the last few years, is Everton. They were found to have breached some financial Fair Play rules. And you mentioned the idea of compensation. They had to pay Burnley about £35 million. But again this was on so much of a smaller scale. What we're seeing with Manchester City really unprecedented. Lots of people calling for relegation. There isn't that sort of precedent within the Premier League, but it's certainly something that a lot of people are calling for, especially when you look at what's called the sporting advantage that Manchester City are deemed to have gained. We've seen them win 20 major trophies in the last ten years. That will be a lot of clubs that finished perhaps second place in those leagues, perhaps ones that were relegated like West Ham last season. That will be thinking that Manchester City really need to pay for what they are supposed to have done here. Let's see where before you go. This shouldn't be a factor, but I wonder if it is. Is this on the government's radar and our government relations with a foreign country involved in this football club a factor in the potential punishment? It's certainly on the government's right. We've heard from Andy Burnham. He spoke last week saying that he does want to look into the findings of this independent commission. But the question of foreign ownership here in the Premier League is not really something that you can ignore. Uh, Manchester City since 2008 have been owned by the Abu Dhabi United Group that is a group with strong familial ties to the president of the UAE. And Manchester City's astronomic success was seen as some sort of Emirati soft power. They spent enormous amounts of money to turn city from a sort of mid-table size to serial champions. We have seen the likes of Roman Abramovich, with Chelsea having to sell his club after the controversy following the Russia Ukraine outbreak. Maybe we might see something similar. Here is certainly something that people are calling for a change of ownership, arguing that city cannot possibly continue under the same owners. So that foreign ownership question, definitely something I'll expect to be on the government's radar as we await the punishment for Manchester City. Thank you. Appreciate your coverage and looking forward to more of it going into a year, and see what a buyer there of Bloomberg out of London on a major story that's rocked the sporting world. I have no idea. Like they're going to go through the appeals process. Go get it. Go at it. I just want to know what the potential punishment would be. I'm not even sure how you come up with the right punishment for the kind of verdict that's been laid at their fate in the last 20 years. What, 115 charges? I mean, that is absolutely astonishing, but it's true. What happens to the punishment happens to these players, happens to the fans because they want to still see, you know, at the very basic level, people want to go out, especially in the case proportional to the kind of punishment that Everton and Chelsea got. And if it is, you look at it, a major, major points deduction. I like the geopolitical factor you brought in because this prime minister has been trying to make better inroads with the UAE and get the UK and the UAE to a better relationship. And does this have potential some backlash? Because obviously the individual in charge of Man City is the brother to the president of the UAE. Yeah, it's not a pretty picture coming out of the UK right now on the sporting front, that's for sure. Let's get an update on news worldwide this morning with your Bloomberg for a Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. OpenAI is targeting at least $30 billion from investors in a new round of funding for its IPO. Sources telling us here at Bloomberg that fundraising discussions are early and could change the company now seeking a valuation at around .4 trillion. President Trump holding crisis talks over whether to impose a diesel export ban or take other steps to contain a fuel crisis threatening Republican efforts in the midterms. The Financial Times reporting the president has called between Republican allies and oil bosses intent on preserving lucrative exports. Citadel CEO Ken Griffin donating $3 billion to Carnegie Mellon University. It's the largest single gift committed to a U.S. university. $2 billion will be used to help build a Miami location, and another billion will be for the university's main campus in Pittsburgh. At 915 this morning. Lisa Abramowitz will sit down with Ken Griffin and Carnegie Mellon President Farnum Danian and that is your Bloomberg. Very stock. Very cool. Looking forward to that. Vonnie. Thank you very much. Is going to be back tomorrow I believe catching up with County J later on this morning. I hope we ask and hear more about not just his commitment, you know funding, education and all of this. I got other questions too. I have other I'm sure Lisa is going to get into deficit. But my questions of course you were. Why up? Up next on the program betting a more hikes monetary policy uh remain somewhat accommodative and further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. Up next, we catch up with Amy Garrett of Morgan Stanley. Stocks just a little bit softer this morning, down a 10th of 1% on the S&P. On the Nasdaq down by 2/10 of 1%. And the Savannah this morning betting on rate hikes. Monetary policy, uh, remains somewhat accommodative. Uh, financial conditions are rather accommodative. Further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. We want to support sustainable, durable growth. So here's the latest. This morning, fed officials, including para masala, reiterating that additional rate hikes are likely needed to tame inflation. Anticipation of fed intervention happen to push gold towards a monthly last semi. Gareth Morgan Stanley writing we saw a big jump in gold positioning in August. This appears to be reversing with a stronger dollar, higher oil prices and a market pricing in a rising likelihood of another fed hike. Amy joins us now for more. Amy, those headwinds to this gold price. Are you expecting them to fade anytime soon? Um, look, I think it's clear to see that these are significant headwinds we should be thinking about for gold. Gold is a non yielding asset. So when we think about it in an investor's portfolio it has to compete with yields available elsewhere. And so when you've got these long dated bond yields a new 20 year highs that does make gold less competitive. You've also got a stronger dollar. So these are real headwinds we should be considering. But I think actually the fact that gold is still above $4,000 an ounce, despite the situation we find ourselves in, tells us that there probably is some other things going on here that are keeping gold while underpinned, and we have probably here to look to the physical market so that we know central banks have been buying. We know China and Poland have been very active this year, but we can see quite a lot of other sources of physical demand as well. So China's gold imports at more than ten times higher than what the PBoC has added to its reserves. So clearly quite good are the demand for gold in China. We've also seen exchange traded fund holdings of gold continue upwards through September. And this is quite unusual. So normally when the fed is hiking you would actually see exchange traded funds selling gold. But actually, as we anticipated and then received a fed rate hike, they kept adding. And then I think like a lot of these long term sort of support factors for gold around fears over currency debasement, government debt levels, fiscal sustainability, these will remain with us. So short term it's quite challenging. But I think, you know, we should look with encouragement at the fact that gold is still above $4,000 an ounce. Amy, do you think we're going to get to 5000, though at some point in the next few years, or maybe the end of this year? Is that even possible? Yeah. So we we are expecting prices back above 5000 for the end the second half of 20, 25.5 for us for there to be two more rate hikes from here, say one in December, one in March. And I think, you know, if we get to that point where the hikes have been delivered, uh, obviously we'll have to depend as well where we are at with the Middle East conflict and the oil price. But I think if we get to that point, the market that may be up to look through, look forward and then also realize that those long term reasons to hold gold remain in place. And I think the fact that this $4,000 support is holding will be leaving quite a lot of people to be looking and and adding, I would brace for some volatility in the months ahead as US economic data comes in as we have these fed meetings. Um, as the market sees how Warsh is going to behave. But I think we would still see upside on a 12 month fee from here. So that's the next year's story in terms of potentially 5000 when it comes to central banks, do you still see them wanting to bring in more gold over, say, U.S. dollars? Um, yeah. So look, I think the trend on central banks remains very strong. Uh, the banks who are buying is shifting around a little bit year to year. But I think what we're generally seeing is that this buying rate of probably 800 to 1000 tons a year remain. So if we take that to keep buying run rate and we analyze it, we're well on track to something equivalent to what we had last year. I don't know if many commenting on specifically if they're selling something else to buy gold. But, um, yeah, we can say Poland, which was the largest buyer last year and has been very vocal about their wanting to add more gold, and it's already running ahead of where they were last year. And China's buying the most gold since 2023. So that trend definitely remains intact. And I think is an important buffer and anchor level for the market. I mean it's good to see you. Thank you. And we gather with Morgan Stanley on the latest moves in gold. Unsurprising really. See go down by close to five 6% for the month so far. The worst month for gold since June, the best month for the dollar since June. And that's been a story so far in September. Exactly. But when you think of central bank buying and you have other considerations like potentially fiscal deficit issues, what the Fed's going to do, and even just this concern of sanctions, you might want to say, I want to buy gold, actually. And I still want to maintain a lot of these central banks. The memories, you know, much of the pressure has been building is led to reserve. The place should not reserve build for some of the key central banks. I mean, like think about what's happening in Japan right now. They've been under pressure to deplete reserves to try and build up build up some support for the Japanese yen is true, which means that potentially that's going to be less for them, at least going into this year of finding some of those gold reserves. But China continues to maintain that buying bias. Gold this morning firmer on a month lower by 5 to 6%, the worst month since June of this year. Next, we catch up with Alex Altman at Barclays, Gil Luria of Davis and Stephanie Roth of Wolfe Research, and a copy of Inside the third hour of Bloomberg Surveillance just around the corner. I know. You have to be careful with this narrative that the U.S. economy is really accelerating. So I'm still not overly convinced that this is a fed willing to do what it takes to get us back to that 2% target. This is the sixth straight year we're missing the 2% target. The risk is if we get a much bigger or more prolonged hiking cycle than is expected. Once we get PC, things will start to settle down again. This is Bloomberg surveillance with Jonathan Ferro, Lisa Abramowitz and Annmarie Horden. I hope things settle down soon. We'll get some economic data. About 30 minutes away. Live from New York City this morning. Good morning. Good morning. For our audience worldwide. The third hour of Bloomberg Surveillance starts right now. And your price action scores look like this. Equity futures on the S&P. Pulling back just a little bit to one. Changed on the Nasdaq down by about a 10th of 1% in the bond market. New levels to talk about the long end of the curve in the last 24 hours. The highest yield on a 30 year that we've seen since 2002, that is this morning. Five 5687 the time for borrowing costs across this nation for mortgage costs, the fixed mortgage rate in this country, the 30 year fix going through 7% and change in the last week and adding some white in the last 24 hours, that is going to be incredibly challenging for anyone that is trying at all to get on the housing market. Not only is supply relatively soft, but that at the same time you want to go finance this, it is going to cost you a whole lot. Don't even put the chart next to what it would have cost you if you did it years ago, say 2 or 3% mortgage. But really, I think the political implications for this are incredibly challenging. But less than five weeks away from midterm election, the current president likes to fancy himself as a real estate developer because he was. So he says he knows a lot about this. This is not where he wants to see mortgage rates. They were supposed to reinvigorate the housing market. This is not reinvigorating. It's not what he wants to see. Yields the 30 year at a level we haven't seen since 2002. I mentioned it earlier on this morning. It's worth trying to internalize that again. There are people on Wall Street that have just left college, got their first year job, pick a bank, any bank on a trading floor, and they weren't born the last time city yields were this high. So psychologically, this is definitely going to have an impact. This is a challenging environment. Which begs the question when the Federal Reserve talks about hiking rates further, maybe not urgently, for this month or next month, starting tomorrow, for October, the next meeting. Maybe not urgently needed then, but we're going to see one likely in December. Who is it actually hurting? Let's talk about the data. It's 30 minutes time less than we'll get PCA in about 15 minutes time. You'll get the ADP jobs report. Looking ahead to payrolls on Friday. The data becomes key because last week we had a red hot PMI and that got this market going. Another like higher on bond yields is going to be validated by the data this week, by the data in the next 2440 eight hours. When I looked at the PMI, the thing that struck me though was some of the responses about how everyone is talking about higher input costs because of energy. And then you look at the Conference Board survey yesterday, the Conference Board talks about references to prices, high cost of goods, services, oil, gas prices in particular rose to new heights. This is the problem. You cannot look through this energy shock. It's starting to hit other areas. Like Mickey's gonna break down the data in just a moment. Coming up this hour, we'll catch up with Alex Salmond of Barclays as high bond yields weigh on equity valuations. Gil Luria of Davidson reiterates in case by a micron going into earnings. And Stephanie Roth of Wolfe Research breaking down the Fed's preferred inflation gauge. We begin this hour with stocks steady and bond yields holding near multi-decade highs. Alex Ahmed of Barclays writing real rates are the brakes for equity valuations. Alex joins us now for more. Alex good morning. Good morning. Are you seeing that show up in this market. Absolutely. So basically what we've had as a summer, if you just looked at the S&P has done nothing since the end of May. But actually we've had a huge positive earnings revision. So really what the market's done is dictated the bond of the equity bulls to turn around and say, well that's great. We're not buying the market on 19 times. I'm like, hang on a second. Interest rates have moved by 100 basis points. So actually what you've seen is valuation adjusted for bond moves. Equities got more expensive over the summer despite the S&P going flat. Is the risk reward in bonds becoming more attractive. It has to be just from a convexity perspective, just because obviously you're being rewarded by 5.25% just to sort of carry that position. So if you move, if it moves to 6%, you'll lose actually not that much. Whereas if it moves to four you get obviously your coupon plus the price, the price return, you've got some visibility across the buy side right now. Is there a temptation to get out of equities? Just sit at the front end of the curve and call it a year. It depends which region you're in, is the short answer. I think if you go to some of the Asia at the apex community who have had a phenomenal year, basically being long memory stocks, um, I think a lot of those guys have sort of looked at the landscape and said, actually, the risk reward isn't that great. We're happy just to sort of degrowth to a, to a certain degree still like the eye trade, but effectively just dial it down, whereas the US investors are still very much hanging a hat on forthcoming IPOs and trying to effectively chase here and performance what what happens with the fact that those IPOs seem to be getting pushed further back in terms of the timelines? Well, I think that the biggest challenge with that is ultimately the AI story hinges on a continuous stream of positive narrative, because ultimately we're still talking about long dated forwards. We're still talking about revenues that have yet to materialize. So one of those catalysts, of course, is a very large IPO. So if that gets pushed out, then then effectively you're pushing out that story a little bit further. And so for us as a team, we ask the question what is the new narrative for IE right now. So if the IPO market is kind of on hold then investors are gonna have to look elsewhere, which is why I personally think something like Muse or Instinct dot dot is literally has saved the AI trade near-term. And I think it's not a coincidence that when muse got launched and obviously, you know, you had, uh, several million downloads a day, then effectively, that's what propelled the AI trade more recently, saved one part of the equity market, hurt the other potentially, yes. And we've seen the money to go into CPUs AMD these kind of companies are chipmakers more broadly. Hardware's had a great time. When you look elsewhere, the banks, the banks, a really curious example of what's happening in equity markets to me. We've had a 10% correction from the mid August high. I've asked the question a couple of times whether people believe it's rights and concerns about the cycle, or whether it's related to this tech trade and this agenda. Can I push on a consumer level? What do you think it is? So it's not just banks. Let's be clear. If you actually look I mean we wrote about this yesterday. Market breadth, whether you look across noisy Nasdaq or just within the S&P is basically the divergence between spot and breadth. It's the number of stocks going up or down. It's the worst basically ever. We've got data back to 2004. So it's not just banks. But I would say that the reason why people are focused on banks is because it's an alarming part of the market. When the banks start to weaken within the S&P is not doing much. That's where especially when credit starts to widen, that's when alarm bells are ringing. That's what I wanted to get into. Small cap stamp a similar amount. Bank stamp by ten. High yield spreads wider for six sessions now. If you and I have been on vacation and we come back and we saw how you'd spread the 300 of we'd taken the year off. No drama. Not a big deal. When you see them back up by 40 to 50 basis points in a week. Get your attention. What do you think the direction of travel is here? What's going on? What's leading to that spread? Widening. I think it's back to the original point about railroads. We've actually had a legitimate FCI tightening within the market. And of course, you've got this almost myopia, given the amount of passive money that's tracking the S&P and saying, well, the S&P is within 1 or 2% of all time highs. So I don't really care. But it's again, it's the internals that we care a lot more about high yield being one rate vol obviously being another. And just the fact that, yes, I mean, the number of stocks within the S&P that make a new 52 week lows is alarmingly high. So I wouldn't say we've had someone starts to be, oh, we've basically had a crash without having a crash. I'm like, let's not get carried away here. We haven't. Yes we've had a bit of a pullback and you can see that in equal way. The S&P is down about six 7% from the highs now. So it is material. And this will feeds into some of the quantitative framework that we really lean heavily into, which, by the way, was sending warning signals all summer, clicked off at the beginning of September. And it's now just click back on at the at the end of September. So it's still telling us that we're not out of the woods. Is this a cyclical growth scare. Broke because we haven't had one. We've had a shock into energy, into rates. We haven't had the growth scare this year. It's one brewing. Uh I think the risk of what we have. Okay. Let me keep it simple. We have to acknowledge that there is a rate sensitivity within the market and the economy. And there is a lot of, let's call them eye balls that don't want to acknowledge that. They want to see I as being completely agnostic to where interest rates go. And I believe that that is incorrect. And so, yes, there should be some fears around a growth scare in the in an environment where quite frankly, ten year real yields are as high today as they were during the peak of the financial crisis in 2008. And if we don't acknowledge that, then I think we have a problem. So to be clear, what you're saying is these hyperscalers are not completely immune. Immune to high rates. I don't think they can be. And you know, we saw, by the way, some of these similar kinds of quotes in 99, 2000 as one, I don't want to draw to you. No sensation is parallels to the.com bubble. But back then, when the CapEx buildup was going on in fiber, you did see a lot of commentary as well was saying, oh, this is going to get built. And these guys are immune to high interest rates. If the economy was immune to high interest rates, then central banks wouldn't exist. Right. So the for the fact that we that we have interest rate system which is designed to act as a brake not just on equity valuations, but on the velocity of money, means that, yes, I don't think anyone can be entirely immune from high interest rates. And you can see it if you look, we actually plotted all of the data center bonds that exist in the public market right now. We plot them. The spread has moved out by around about 6070 basis points over the equivalent treasury, which is around about 20 year point. And that is noticeable. You know, you've had a ten basis point move in ECG, which doesn't sound like a lot, but it is in the in the world of ECG. So the world is noticing and it's for us it's a case of does the S&P catch down, which is breath catch up. And quite frankly I think that's only going to be resolved once we know where interest rates back end or front end is going. What's your base case. So base case is is that as I said I think do do I think bond yields look relatively attractive here. Yes I do. I think the biggest challenges is that there's been a huge amount of position on loans and pain within the macro community, within the rates market. And so actually a lot of people are focused on what's happening in back in yields naturally, especially as equity investors, because we're long duration assets. Really a lot of the unwinds have been transpiring at the front end. And it's actually been that repricing of central bank expectations and inflation that has driven actually the back end. And if you need an illustration of that, two 3330 spread had one of the fastest flattening that we've witnessed in 50 years. So actually people would like to give the Treasury a hard time saying, oh, you were supposed to anchor the back end. Actually, they did a great job anchoring the back end in the context of what front end interest rates did. And so you basically need an unwind to end. What's going to end that? Is it going to be oil less convinced the relationship between oil and rates. The correlations broke down substantially over the past ten days. And so my concern is, is that actually we're kind of in this negative gamma environment for rates. So yes, I want to be constructive on rates. But I think the problem is we just end up getting stuck here for a while. And that just basically puts more pressure on equities just to put a bow on everything. That vicious flattening ended about a week ago with a hot PMI. Then the statement came back. Yeah. And that's a little bit of a contradiction. So you've got this really hot one data point this really hot PMI. You've got these high yields and a slightly steeper curve in the last week. And yet spreads of wider thanks to lower small caps are softer. So you've got the risk of a growth scan the equity market on the one side. And they've got people talking about a re acceleration in the economy on the other. That's a massive contradiction. We need to you need to settle in the coming months. It is. And I think the only way that people have attempted to reconcile it is they'll look at the earnings trajectory of the S&P and say, no, there's no inconsistency here. Earnings growth is great. Operating margins are expected to grow. That's consistent with the bond market telling you that we're in and high nominal GDP environment. I think the challenge is is that if you just scratch below the surface, almost all of that earnings growth is coming basically from memory and semiconductors as well as the operating margin expansion. We've done the work on this. So effectively you're taking a bet on not really even the eye trade at this point. You're taking a bet on semis. And that to me is a very scary proposition. Micron coming up a little bit later after the close Alex thank you. It's good to see you around. Thank you Alex on the net of Barclays breaking down some of the issues in this market. Some of the nuances. Let's get you an update on news worldwide with your Bloomberg brief. Vonnie Quinn has more. Hey, Vonnie. Hey, John. Thank you. OpenAI's chief executive officer Aslam Goldman, believes investors will be patient with its IPO planning. While we are going through this period at the just into this new level of capability, uh, and the new safety requirements for that, we just want to get our feet under us, make sure we understand how to operate in this new way without the pressure of being a newly public company. And then I think we'll be public at some point. The company looking to raise at least $30 billion in a new funding round, seeking a valuation of around .4 trillion. JPMorgan and Goldman Sachs say shipments of crude through the Middle East have rebounded to 98% of prewar levels, even as shipping risks continue. Flows of diesel and gasoline were at 3 million barrels a day, or just 58% of prewar levels. In sports. The MLB playoffs started last night, with the Yankees taking game one of the wild card round versus the Red Sox. Ben Rice led the way for New York, driving in six runs, including a grand slam. Elsewhere, the Braves, the Padres and White Sox all won their game one matchups. And that is your Bloomberg based on money. Thank you. Thank you very much. You know, when you ask me, did you plant that story? Did you plant that story? I didn't, but it's the reason why I'm wearing this today. I wanted to wear navy, black and white. Yes, Navy, Navy and white. Forget the Yankees coming nine zero against the Red Sox. Incredible. Randy Levine, the president of the Yankees must be having a great week once. Randy coming up, hopefully soon to get ready to visit Mark Raymond on the program together. I love this Hello Yankees. But you know, he's also leading the President's College Sports Roundtable to try to make college sports make sense again. And it's in a bipartisan fashion. And it just passed the Senate to. So he's having a great week. That's a good morning Washington. Good morning Boston for memory this morning I'm next on the program a rate on the labor market. Plus Gloria FDA Davidson reiterating case by a micron going into earnings from New York City this morning. Good morning. One of the reasons that you could back off on October is that the whole curve is shifted higher and shifted sort of dramatically higher in a fairly short period of time. Can the fed really affect the things that are driving inflation right now? And the answer is on the margin only by hurting demand. And that hurts a whole lot of other things. The economy as a whole is less so. But the consumer does not. Sarah Hunt of Alpine Saxon Woods on this economy and this Federal Reserve weighing down on this economy right now. ADP data crossing moments ago. Mike McKee has the latest. Good morning Mike. Good morning John I don't think it's a whole lot of weight on the economy because we get 90,000 jobs created in September, according to ADP. In the private sector. That's after 36,000, a revised number for the month of August. That puts us in the range of what economists are thinking. That's essentially what the consensus is for Friday's report. And it tells the fed that they don't have to worry about the employment market at this point. We're not really seeing a major change in terms of pay either according to ATP for job status, 4.4% for job changes, 7.3%, but not that many people changing jobs at this point. In terms of the employment, it's largely in the service providing area, as always, with the number of people in the leisure and hospitality of 22,000, it's a rebound from last month and, uh, professional and business services lose 11,000. The big winner, as always, health care and health services, 55,000 uh mining and natural resources under goods producing lost a thousand, but we had 15,000 in construction and 17,000 in manufacturing. So a very fairly healthy hiring month. Of course, this is not the big number of the day that comes up at 830, when we get the inflation figures and some technical issues with the PCA might be going to break down in about ten minutes time. And I'm looking forward to that. Might be key there with the latest economic data. That's some extra fuel just to this benchmark is set off just on the march and you're notice yields creeping a little bit higher off the back of that aid paper and yields up across the curve by a single basis point on a two year. This morning, if you can get those prices up to about 489 this morning on twos on tens high rates around just a little bit. The ten year a five 2430 further out along the curve approaching 560 all over again, just levels. We have not seen experience going back to 2002. That's some of the price action. Let's get some more because first up Citi cutting its price target on Morgan Stanley pointing to a higher assume cost of equity. The second call from Rosenblatt raising its target on Amazon saying I shopping Asian fears are overblown. And your third and final call from Piper Sandler raising its price target on Microsoft, seeing more upside in its enterprise products that name this morning. It's positive by not even a 10th of 1%. That's for every morning calls. Let's get to the beginning story later. Micron reporting after the closing bell with investors watching for signs memory demand is holding strong. Gloria of Davidson has a buy rating and a $2,000 price target on the stock, he writes. We expect micron to report upside to estimates and leverage the momentum to close the valuation gap. Gil joins us now for more. Gail, let's paint a picture to get a picture together. Let's talk about the valuation gap. The multiple, um, pick a hardware story. Pick a chip maker right now with 50, 60, 70 times forward earnings and compare it to micron in mid-single digits. Gail what explains that massive valuation gap. Well we don't think that gap should exist. Uh we think the market right now is of two minds. It's trading in Nvidia Broadcom micron. And the memory sector is if the cycle's over as if we're going to uh, the uh there's going to be so much supply that prices are going to go down. There's going to be less demand for AI. Volume is going to go down. And therefore you can justify these sub market multiples and in micron case, single digit multiples. And yet all the rest of the semi complex and optical and construction companies are trading at 30, 40, 50, 60 times earnings, which implies that the cycle will continue in a healthy manner through 2030. Those two things are inconsistent, and I think micron will be able to help shed more light on that today. Part of what's happening is that micron is new to the consciousness. It's where Nvidia was three years ago. It just came onto the scene with this huge level of growth, and people are still wrapping their heads around the fact that micron has a very big role to play in the build out of AI. A more memory makes models better. More memory makes models faster. More memory means longer context window longer duration. It is a very important part of how we're going to build the AI compute, and that's still be significantly underestimated by the market. What do you think the catalyst will be to close the gap? Is it just the water torture, the drip feed of better than expected earnings followed by better than expected earnings, followed by better than expected earnings or something else that'll help, that it'll help today that they're going to perform well above their guidance and, uh, and let people see that there's, uh, durability to that. They may give us they're going to at least give us one quarter of guidance. They may give us a full years of guidance just this fiscal year. And and talk to us more specifically again. They've only had one opportunity to talk about how their nature of their business is changing, how over time, at least half of their revenue is going to come from long term contracts for products that are code designed. So they're code designing their memory into the data centers for Microsoft, Amazon, Google, etc., Apple, etc. which means that their product is by no means a commodity, which is the perception that is stuck with that. And so they'll have another opportunity today to articulate why they're going to get all this value from long term contracts, from products that are very specialized now and are very entrenched in their customers buying programs. And this is not the cyclical business that it was three years ago. With the rise of potential headwinds on the horizon, seeing more headlines across the board, impact on the potential for data center delays, we know what the political opposition looks like and its building heading into the midterm scale. Is that going to be a factor that hands over the stocks into 28? Yeah. So the regulation, the pushback against data centers, the overall political, uh, concerns around uh, around artificial intelligence, superintelligence, whatever we want to call it these days, all of these things will be a governing factor on the growth of data center. But let me actually posit that that's a good thing. What we don't want right now is out of control data center construction fueled by that. If that happens, we will hasten the end of the cycle by overbuilding. By overextending, it actually may be a good thing. Then there's some governing on this growth. What we really want is for the cash flow growth at Amazon, Microsoft and Google to drive the growth in data center construction. That's 20% growth, 25% growth. If we could get that sustainably for the next 3 to 5 years, all of these stocks will do very well. The fear is that we're overbuilding by borrowing, and we're going to try to double our data center capacity next year, which again, will hasten the end governing this growth through regulation, through scrutiny, through, um, higher interest rates may be a good thing in that it'll create more sustainable growth. That's again, good for all these companies, but especially undervalued companies like micron, like Broadcom, like Nvidia, get what's going to be the constraint on something that is, quote morally binding. The, uh, I think you're referring to the agreement between the heads of the technology companies and, uh, the president yesterday. Uh, the goal here that all these, uh, entities, the government and, uh, the federal government and the technology companies have is to progress at full speed while making sure nothing bad happens. And they're going to have to be responsible adults here. Let's not forget, for all the reporting on on the Frontier Labs and OpenAI and anthropic and the hacks that happened, I think if you were to distill the signal from the noise there, I would tell you that an engineer at OpenAI and engineers at anthropic let loose swarms of agents that caused harm. The responsibility is on the frontier Labs, and they need to be more responsible. And I think that's the message from the agreement yesterday, is that if you unleash agents, you're on the hook. Yo, it's good to see you. Thank you. Sir. Gloria of Davidson. Up next on this program, some economic data, the latest rate on inflation. Okay. Just around the corner. Reaction with Stephanie Roth of Wolfe Research. A. PCA data just seconds away. 20s away. Going into what your scores look like this. Here's the price action across asset starting with equities equity futures positive by about a 10th of 1%. ADP coming in hot moments ago 90 K. The estimate in our survey was 75. That's the appetizer before payrolls into the bond market yields bleeding a bit higher off the back of that twos tens and 30s. The move doesn't hold though two is about unchanged now at 487 with your economic data this morning as cross over to Mike McKee for a little bit more. Good morning Mike Good morning. John. Well, we're waiting for the numbers to drop from the Bureau of Economic Analysis, and they're just coming in right now. Personal income up 2/10 of a percent. That's a disappointment. Down from 3/10 the prior month. But the number by cares about a PCE price index on a month over month basis comes in up 3/10. The uh forecast was for about that the uh number from the prior month, a 10th of a percent. Uh, that leaves the PCE price index on a year over year basis at 3.4%. That's down from 3.7. But remember we talked earlier. There is some methodological changes that will have an impact here. We'll talk about those in a moment. The core up 2/10 of a percent after a one tenth rise the month before. That puts the core year over year at 3%, still over 3%, uh, down from 3.3%. Uh, the final read on GDP, 2.2%. Uh, it was 1.5%. So that's an improvement. That's for the second quarter, however, and the advance good a trade balance is a -132,000, 32,000,000 billion, rather, uh, 600 million. So a significant widening in the trade deficit. I'll dig into the numbers and, uh, get back to you in just a second with some of what changed in my thank you. But you are seeing some price action off the back of this, some reaction more broadly, we can start with fixed income. And the bond market is seeing yields decline to at 230. So the front end of the curve we're down by 3 or 4 basis points to about 484 at the long end of the curve where a lot of the headlines are coming from. More recently, particularly on the 30 year, given the levels we struck in the last 24 hours, the highest level since 2002 yields lower just a little bit by a single basis point on Thursdays to 555. You could see that on trends down to 520 on down three basis points on the session. That's unlocking some gains in the equity market. Let's point it out and highlights it. Sit on the S&P up by a half of 1%. Small caps some relief there off the back of the write story up by 0.9 on the Russell and maybe on the margin, reducing the likelihood of a hike, at least for October, particularly off the back of the commentary from the New York Fed President John Williams in the last 24 hours, talking up one hike. And maybe late this year, my Mickey's got a second look at the data for us. Might traditionally, there's not much useful new information in this after you've got CPI, after you've got PPI. What's different about this this morning? Well, the VA made some methodological changes. Some of them were fairly large. The PCE calculations change is three sets of revisions. They started in 2021 up through today new seasonal adjustment factors, new data on services prices and the methodological revisions which I talked about to legal services, computer software and equipment and portfolio management. That was the big one that people were expecting to really weigh on this month's, uh, PCE Index, and it looks like it may have done that. We'll have to dig those numbers out in just a second. But basically what the story is, is we've got lower a year over year numbers month to month. But if the fed is looking at the changes on a month to month basis, now that it's all revised, inflation is still rising, still above 3%, so the narrative doesn't really change. Matt McKay. Thank you sir. I'll come back to you for another bait in just a moment, because Stephanie Roth, a Wolfe researcher with us around the table. Steph good morning. Good morning. First reaction to that is that news or noise? I mean, I think it was news, but we were all waiting for you know, we knew that was going to happen. But now it actually finally printed where you got the big revisions to some of the categories that Mike mentioned. The big ones are computer software and portfolio management. And now we're seeing an environment where now we're fighting 3% inflation on core PC. And realistically, when you get when you move through the next couple of months, the tariffs roll through the data. We're going to we're going to see that we're really fighting 2.5% inflation. So it's a much different backdrop than the headline numbers as they printed, say, last month. Does that fact require a hike in October and a hike at the end of the year? Look, I don't know if it requires it, but I think the fed probably wants to do it. Although maybe there are some questions now after, you know, Williams speeches yesterday. But I think they're going to they're going to hike at least one more time, maybe twice. How much weight should we put on John Williams? We've had a hawkish chorus over the last few weeks. Very, very difficult to find any daylight between them. And then you've got the New York Fed president talking at one and maybe at the back end of the year. How useful was that commentary from the New York Fed president? Is he an outlier, or is that the emerging core? I mean, I think he tends to be on the more dovish side of the core. So I don't know if that necessarily represents the rest of the governors. I think what we'll see is they're going to they're going to be swayed to some extent on the data. So it's going to depend on payrolls. It's going to inflate on corn, on core on CPI. And then they'll ultimately make their decision. And realistically, you know, I think that will be swayed depending on also what markets, where markets take them and where oil prices land. When it comes to Williams, though, he used this phrase there's no need for urgency when you see this data today. Does that spark to you urgency? No, I don't think there was a need for urgency in the first place. I think the market wanted the fed to be hiking, partially because oil prices spiked. And in in, in thinking about in the survey of clients that we did yesterday. That's the that seems to be the primary reason as to why rates have backed up most recently, certainly taking rates notably about 5%, a combination of technical factors and oil. So it's not really economic in nature nor the fed hikes really solve that. But the market wanted them to hike and therefore they went ahead and did it. We also heard from Williams yesterday saying while monetary policy cannot move ships or reopen pipelines and refineries, it can diminish the risk that these supply shocks spill over into broader and more persistent inflation. How much are you seeing it spill over? The spill over? Isn't that large realistically mean? It's been concentrated in a couple of categories on the good side for sure. And there are there are increasing concerns that as the war in Iran continues, you'll see more supply shocks impacting the good side of the economy. So far, it's been mostly on the tariff side. It's been the Iran war boosting airfares and then to some extent on the on the chip side. And now, you know, after today's data, you got some significant downward revisions to your computer software categories, largely because of the way that Nipa went ahead and changed the construction of that measure. Like is making the argument that today's diesel prices are tomorrow's core inflation. Do you see it the same way? I think at the margin it will put upward pressure on goods. I don't think it will be so substantial, similar to the way that everybody was so worried about tariffs causing massive inflation. Tariffs did contribute to inflation. No question. I don't think that the diesel price effect will be nearly as large as the tariff effect. But it fed through very slowly into inflation at a time where tariffs are going to be moving the year over year figures the other way. Realistically, we're not going to get another rise in oil prices the same way that we got. So airfares will, you know, maybe continue to trend higher, but not so much. And we'll be in an environment where inflation is trending into the tooth. If you're just joining us, welcome to the program. Just moments ago. Seven minutes ago inflation capacity coming in softer than expected. The monthly rate coming in at 0.2. This is Koepka month over month. The estimate in our survey was 0.3. Downside surprise. That takes the year over year figure to 3.0. The estimate our survey was 3.3. That unlocks this move in the bond market. Push it through fixed income 2/10 and 30 CEOs declining across the curve. You can see at the front end of the yield curve two down by 3 to 485 ten down by just a 1 to 522 and 30s not biting at 37. Better at all off the back of better than expected data on inflation this morning, and worse than expected output data in the last 24 hours. Look at the job openings and consumer confidence was not good at all just yesterday. If you turn off the back of that data and look forward now to the next data point, it's payrolls on Friday. It's CPI on October 14th and it's a fed decision on October 28th. And we said it again this morning Anne Marie. There's a lot of weight. It's going to be put on CPI as the deciding factor for the Fed's next move. Heiko hold at the end of this month. And when it comes to this Friday really what's going to be the main point everyone's going to be looking out for is wages. Do we see wage growth. Is there potentially going to be some inflation. When we look at the jobs report. And then how much is this all just hinge on that one CPI as it did for September. It felt like everything hinged on that CPI report in September before the fed decided to take that hike. There's a headline now that traders are paring bets on October after this PC report. And of course, basically what we heard from Williams yesterday, it might make he has a third look at the data. Mike, what do you say? Well, we're still looking for all of that. We got to really dig into this for some of these numbers because they don't come out of the headline aspect of it, but it looks like the portfolio management, which was up 5.4% under the old methodology, is down by a percent or so in the current, and that subtracts 3 to 4 basis points from the overall number. So, uh, we do have changes. But again, the bottom line for the fed is going to be that the, uh, they can't look at these numbers and say there's a lot of improvement in what they see in terms of the inflation trajectory. And that's going to be something to listen to when we hear from a lot of fed speakers today and, uh, through the rest of the week. Matt Key, looking forward to your coverage and kind of looking forward to some of those fed speeches in the next week or so. We've had so, so many of them. Yes, last few weeks. Yesterday was an onslaught. It felt like. Do you start to see more the Williams take? There is no urgency here, because that's certainly not what I've seen reflected in some of the more recent commentary outside of him. We can ask Neel Kashkari tomorrow what he thinks is this potentially? I think it was the urgency that struck me. Basically, if everything comes in in line, maybe they could hold in October. I love the report of that. Ask those. It's just political. Oh, of course not. There's no politics involved. But you have to say, if they were going to take a pause at any month during this entire hiking cycle, you would want it to be a few days before a midterm election, wouldn't you? We're catching up with the Minneapolis Fed president tomorrow morning at 730 eastern time, right here in New York. In the studio ahead of that, you will hear from Barkan, cook, Goolsbee, and you'll also hear from Kashkari a little bit later. He's conducted a fireside chat at 6 p.m. eastern time. So plenty of commentary coming from these guys between now and the next fed meeting. Stephanie Rother, Wolf Research still with us around the table. Steph October 14th CPI. Does that hold the keys to what happens here at the end of this month, or is it more than just about one data point? I think it's more than one data point. And you know today's data wall came in lower than expectations. It barely rounded down 2.2.247 right. So it was still playing a game. We are starting to get some to some extent gas. Just because you know that that drives the headlines to some extent. We got some significant downward revisions on the year over year about 40 basis points. But we knew that was coming and mostly driven by portfolio management, which is largely because they change the calculation. So it's not entirely driven by stock returns. And therefore we're probably in an environment where it's going to be a combination of oil. What happens on Friday? To your point earlier wages are going to be important to watch out for because so far wages have been quite sluggish. There's been no argument that wages are concerned the labor market is contributing to inflation. But if that starts to change, that could easily tip the scale in favor of of going in October and then oil prices. And Trump has alluded to not wanting to have a deal before the midterm election. So if we end up with oil prices where we are higher, the market's going to probably push them to end up. Are you expecting that wage number to change? What are your basic expectations for Friday morning. Base case for Friday I think it'll be a slightly softer report. Uh, we have, you know, 70,000 versus consensus, which is a little higher than us, the unemployment rate picking up a little bit to 42. Wages coming in at 0.3. So you think it will be a somewhat boring report realistically, but the combination of some of the other factors will be what ends up deciding whether the fed ends up going. And given the month we just had in this bond market, I think would say boring on Friday morning, won't we? I think so. Yeah, that's for sure. Although, you know, there's been a lot of days recently where there hasn't been that much news and the tenor continues to drift higher. Stephanie Roth of Wolfe Research Stephanie, thank you. Appreciate it. Breaking down the economic data. Inflation coming in softer than expected. And look at a rally in the bond market, at least on the front end. We'll see if that sticks elsewhere. Equities pushing higher on the S&P 500 up by 0.4. And some outperformance on the small caps. But a rough ride for those small caps down by about 9% from the mid August. Highs off the back of this big repricing at the front end of the yield curve. So some relief for the Russell at least for now for this morning a little bit of relief. This was pretty good data get all things considered coming in in line. Obviously everyone though is going to be waiting on what happens on Friday and what happens at the next CPI report, given the fact where we are in terms of these rates potentially. Can we see some some more relief when it comes to the data? Let's get you an update on news worldwide this morning with your Bloomberg Daybreak Vonnie Quinn has more. Hey, Vonnie. Hey, John, recapping the PCA data, we just got the core number which exclude food and energy items, up 2.2% in August. The Fed's preferred inflation gauge was lower than expected year over year, rising 3% versus expectations for a gain of 3.3%. We also got ADP employment data for September. Earlier, private sector unemployment increasing by 90,000 versus estimates for 75,000. The September nonfarm payrolls report due out Friday. Economists surveyed by Bloomberg expecting an increase of 90,000 jobs there. Apple is expanding into the smart home market, preparing for a new product line up from October 13th. People familiar with the matter telling us here at Bloomberg, a new smart home hub is at the center of the strategy, alongside an update to the HomePod mini and a new TV set top box. Um, that is your Bloomberg brief. John, finally, thank you. Thank you very much for this morning. More from Vani tomorrow. Looking forward to that and her coverage going into the weekend which is still three days away. You ready? Such a long month hasn't it? October? Just around the corner. I mean, it feels like it's been a very long year. It's like decades. What do they say? It's a year where there's been decades in the year. So it's like Q1 felt like a lifetime, and Q2 and Q3 has really whisked by. But it's been absolutely exhausted tracking this bond market. Total grime, total grime. Everyone I speak to on Wall Street right now, just one year over. Get it done. See, in 27, maybe 20 more months to go, what do you call it? Twos and season snakes. Maybe that season, maybe that's what you do for the rest of the. If I had the luxury of just buying twos and taking a snooze, I would do exactly that. I don't, and I'll be right here with us. Don't have that kind of money that some people do. If you do, you can afford just to put that into and just snooze and you can relax that way and maybe retire. That's a wonderful thing. That might be the best way to go to see out the end of this year might be like 30s. That is the time. I don't know, 5%, 550 maybe. Can I take it? Some people might. I'm not in that position again. Up next on the program was set you up for the day ahead for a game of ING as Covid expected inflation data gives bonds some relief. Live from New York City. You're watching Bloomberg TV. I think it was news that we're all waiting for. You know, we knew that was going to happen, but now it actually finally printed such where you got the big revisions. Some of the categories that Mike mentioned, the big ones are computer software and portfolio management. And now we're seeing an environment where now we're fighting 3% inflation on core PC. And realistically, when you get when you move through the next couple of months, the tariffs roll through the dealer. We're going to we're going to see that we're really fighting 2.5% inflation. That was Stephanie Rath of Wolfe Research on the latest PC print, coming in a bit softer than expected on core, unlocking some gains across this equity market. Check it out here. Here. Scores equity features on the S&P up by third. Just about hanging in there on the Russell. Initially it sparked a bond market move at the front end. Yields came in 2/10. And Thursday's an update on that move. It sticks to the front end. We're down by 3 to 44. But you're not seeing much of a rally further out along the curve tens of five 2330 around 558 and approaching 560. This curve is steepening of the back of some of that data. Mike McKee has more on the economic data we saw just moments ago. Mike has more now. Hey, Mike. Hey, John. Well, I think there are a couple of points to be made here that maybe we've lost in all the cascade of numbers that we got today. Not only do we see basically the same story in inflation. When you look under the hood, not just the portfolio management and legal services, but services excluding energy and housing, the super core PCE goes up on the month by 4/10. In July it was up just 8/10. So you've got some inflation still in services and that's going to bother the fed. We have the 90,000 jobs created more than anticipated according to ADP. Sets us up maybe for a stronger Friday payroll. And then finally we sort of glossed over this. But personal spending was up 9/10 of a percent after just a one tenths of a percent gain in the month of July. So fairly strong personal spending and fairly strong job creation suggests that the economy is doing just fine. Maybe starting to accelerate. And again, that feeds into the Hawke case for again raising interest rates at least by the end of the year. Matt McKay, Thank you buddy. Appreciate it. Might make you with the latest portrait gallery of agencies around the table for more. Good morning. Morning. You put it together for us. What does this mean for policy and for this for this yield curve this morning. The numbers? Yeah. It's a good number. 0.2%. Fantastic. But we're still looking at inflation of three 3.5% in the US is still a I would say it's still a 3.5% inflation economy. That's that's the way I would say it. Um I think I think it um, I mean, if you look at what's driving rates, the really intriguing factor is that's the reason we are where we are is because of higher real rates. And those higher real rates do gel with non inflationary factors. So the the the astonishing factor here is that where higher because of higher printed inflation but not because of higher inflation expectations. So this inflation print in itself is not grace. Um but this pressure on the back end is more reflecting the higher real rates narrative than necessarily the inflation expectations bring up the yield curve this morning off the back of this data. You'd expect the front end to be somewhat bad off the back of this move. The rest of the curve is not coming with it. You've got some straightening not just driven by the front end, but the back end to 30s. Just feel a bit more untethered. Weaker data in the last 24 hours. Lower oil prices yesterday. It's a dovish fed speak and you just don't get that bite at the long end. What kind of catalyst do we need to get these yields moving in the other direction. 35.5 north of five and a half is quite a number. Very very slippy. Uh, I think I think 30s are an interesting reference point, but the real benchmark is tense. I mean, that's that's the real number. So ten's at five and a quarter is the big story. 30s uh, can easily slip up to five, 75 or 6%. But but the big the big thing is tense. What kind of catalysts? Um, you know, the market needs to see something really positive on the fiscal policy front. That's what it needs to see. It needs an excuse to buy the market. You're getting a lot from an array off the back. It's not going to just not happen is it? This is why we are where we are. Because it's not happening. I mean, we got the midterms coming. Neither side is going to volunteer to raise taxes are to cut back taxes. The president is talking about checks flying out. Right? Right. Right. But the backend is lost looking at this saying this, it's saying high, high printing inflation, which is problematic for the back end anyway. So you know what what catalysts are we going to see. That's what we need to see. Jonathan, do you think that potentially what the Trump administration was doing prior, when it comes to using the free funds and Doge was actually keeping a lid on some of this? Yeah. I mean, here's the interesting thing. If you look at the fiscal deficit this year, it's the same as last year. It hasn't gone up. Why? Because we've had the tariffs which have brought in tax revenue dollars just help the little base. So the marketplace was was very tolerant of the fiscal story. You look at issuance. It's the same this year as last year. So a lot of this is about the narrative. It's about what what does the future look like and what policy measures do we have in place to sort out the future fiscal issues. And this is what the marketplace is saying. Well, we just don't see an answer to that question. Consequent. Yeah, absolutely. The morning we got the press release from the Treasury Department on increasing buybacks. 30s were where tens are right now, which is 525. I think you've got to ask the question. 525 on Thursday's was enough to prompt some kind of corrective action from the Treasury. You have to imagine 525 on Ten's could do the same. What are you expecting to see in the coming weeks? I haven't heard many people talk about the next quarterly refunding announcement. It's kind of dropped off the radar a little bit. You expected some changes in the next month or so, next couple of months. So on the buy backs, let me be a bit controversial here. I think the buybacks have been successful. Now why do I say that? I say that because when Scott percent executes buybacks what is he trying to achieve. He's trying to return treasuries relative to sulfur because sulfur is the risk free rate. Has he achieved that? Yes he has. The reason the 30 year rate is high, in fact, is because the entire interest rate spectrum is high. One of the astonishing things right now is that if you look at the ten year sulfur rates, we don't look at sort of a very often the ten year sulfur case is discounted to anticipates that the fed goes to five and stays there for ten years. It's a remarkable discount and I haven't even mentioned the deficit. So this is marketplace has high rates. Yes we talk about the deficit but it's up there because of this remarkable rate hike. Discount the productivity revolution. The deficit. High real rates. That's the issue of our party. Thank you. Sir. That last point is actually really, really important that we haven't had the deficit. Jeter led trade. That leg of the trade hasn't appeared just yet. People talk about it, but you haven't seen it in the market in a material way. It's true of people talk about it and then people say, well, there's no solution to it. But I do wonder next year, is there going to be a lot more jitters around this, given the fact that we are going to hit a limit on the debt ceiling, and there's going to be that football that gets passed around in Washington in that debate, you know, that then at some point they have to do something, which basically means everyone is going to spend more to get to an agreement. Some better news in this phone market for now, just on the margins, softer than expected PCA. And look at it rally at the front end of the curve yields a lot by four basis points and a bit of positivity and equities going into the up and about coming up tomorrow. Kasey Barot, JP Morgan Cheering Emmanuel Evercore Libby Cantrell, Pimco Minneapolis Fed President Neel Kashkari.